China Fishery Group

[Nick]

Share price down nearly 14% to 59.0 cents. To put it in perspective, its all time low in Oct 2008 was 43 cents and its peak was in Jan 2011 at 234 cents.

Looking at their results, seems their South Pacific division is the one dragging down the Group's performance. It generated revenue of US$49.9 mil (2011: US$121.8 mil) and net loss of US$26.8 mil (2011: Net profit of US$9.2 mil). Is this a temporary blip due to timing / weather factors or a sign that the diversification into the South might not be working ?

(Not Vested)

[yanziyang]

OSK research report:
Joshua Low (+65 6232 3884, joshua.low@sg.oskgroup.com)

Below expectations, downgrade to NEUTRAL. China Fishery (CFG) reported 4QFY12 net loss of US$15m, versus ours and street’s expectation of US$28m and US$29m net profit respectively.

FY12 net profit was down 25% to US$78m. The disappointment for FY12 was due to poor results from the China Fishery Fleet operations (previously termed South Pacific operations) which recorded net losses of US$27m for FY12 (versus net profit of US$9m in FY11). Going forward we expect muted share price performance stemming from (1) poor earnings visibility from China Fishery Fleet (CF Fleet) segment and Peru fishmeal (due to a 68% cut in Nov 12 – Jan 13 TAC), and (2) cut in dividend payout. We lower our FY13 earnings by 46% and downgrade our call to NEUTRAL (from BUY previously) with a revised TP of S$0.65 (from S$1.00 previously) based on 7.3x FY13 P/E, a 33% discount to its five year average forward P/E. A dividend of 1.9S￠ per share has been declared.

Earnings visibility could be poor going forward. CF Fleet segment’s FY12 results were weak due to lower processing business in North Atlantic Ocean as suppliers we unable to deliver significant volumes for processing. Catch volumes in the South Pacific Ocean came in lower than expected as well. We expect continued uncertainty in earnings visibility for this segment going forward. Peru fishmeal segment’s outlook appears dampened as well with a 68% cut in Nov 12 – Jan 13 TAC to 810k tonnes, though this will be partially offset by favourable fishmeal prices that have climbed 50% YTD to US$1,780/tonne.

Cut in dividend payout could be here to stay. CFG does not have a dividend policy but has historically been paying out a third of its earnings as a guide. Its FY12 payout has however been lowered to a 20% payout (1.9S￠ for FY12) in a bid to conserve cash. We think this payout ratio could be here to stay. Our revised FY13 dividend yield appears much less attractive at 2.7% versus previous forecast of 8%.

[Musicwhiz]

Looking at their results, seems their South Pacific division is the one dragging down the Group's performance. It generated revenue of US$49.9 mil (2011: US$121.8 mil) and net loss of US$26.8 mil (2011: Net profit of US$9.2 mil). Is this a temporary blip due to timing / weather factors or a sign that the diversification into the South might not be working ?

The Company says it is seasonal I think, but the best method is to observe for the next few quarters.

[money]

This stock is once Crabcrab's favourite stock...

However, their recent "PROPOSED ISSUE OF FIXED RATE SENIOR NOTES BY CFG INVESTMENT S.A.C., AN INDIRECT WHOLLY OWNED SUBSIDIARY OF CHINA FISHERY GROUP LIMITED" which bear an interest rate of 9.75% make crabcrab raise its eyebrow and suddently become very very very prudent with this Chinese company... hence completely offload the shares, at a loss.....

See below attachement:
http://info.sgx.com/webcorannc.nsf/Annou...endocument

Paying an unusual high interest rate in a bond issue (especially in a relatively low interest rate environment) usually indicate financial distress of a Company.... Good luck

perhaps it has to pay such a high interest rate as it is not making good profits at the end of the day... Notice this is a business that likes to talk about growth using debt... a little similar to olam huh

[Curiousparty]

it is very likely to drop below 50 cents . Got to be patient

This stock is once Crabcrab's favourite stock...

However, their recent "PROPOSED ISSUE OF FIXED RATE SENIOR NOTES BY CFG INVESTMENT S.A.C., AN INDIRECT WHOLLY OWNED SUBSIDIARY OF CHINA FISHERY GROUP LIMITED" which bear an interest rate of 9.75% make crabcrab raise its eyebrow and suddently become very very very prudent with this Chinese company... hence completely offload the shares, at a loss.....

See below attachement:
http://info.sgx.com/webcorannc.nsf/Annou...endocument

Paying an unusual high interest rate in a bond issue (especially in a relatively low interest rate environment) usually indicate financial distress of a Company.... Good luck

perhaps it has to pay such a high interest rate as it is not making good profits at the end of the day... Notice this is a business that likes to talk about growth using debt... a little similar to olam huh

[mrEngineer]

Sold at a deep loss.. Regrettably, I did not manage to learn much from this loss. I can surmise it as a trading risk that I had to take (reversion to mean)

In any case, I had serious doubts on the activities of CFG especially after reading the article below. Fundamental stock investors would have simply avoided this company based on the complex nature of the JV with Russia Sea Catching, pre-payment with Perun and then acquisition of 3 associated companies by Russia Sea Catching that were supplying fish to CFG (which I suspect is either Perun or Alastir) based on the other article I shared earlier..

http://www.undercurrentnews.com/2012/11/...-payments/

[Curiousparty]

if we look at the breakdown of sales for 2H of the year, sales were down 33% YoY and operating profits were down 84% YOY.

Wow, is this the start of the downward trend for the company?

Sold at a deep loss.. Regrettably, I did not manage to learn much from this loss. I can surmise it as a trading risk that I had to take (reversion to mean)

In any case, I had serious doubts on the activities of CFG especially after reading the article below. Fundamental stock investors would have simply avoided this company based on the complex nature of the JV with Russia Sea Catching, pre-payment with Perun and then acquisition of 3 associated companies by Russia Sea Catching that were supplying fish to CFG (which I suspect is either Perun or Alastir) based on the other article I shared earlier..

http://www.undercurrentnews.com/2012/11/...-payments/

[money]

Sold at a deep loss.. Regrettably, I did not manage to learn much from this loss. I can surmise it as a trading risk that I had to take (reversion to mean)

In any case, I had serious doubts on the activities of CFG especially after reading the article below. Fundamental stock investors would have simply avoided this company based on the complex nature of the JV with Russia Sea Catching, pre-payment with Perun and then acquisition of 3 associated companies by Russia Sea Catching that were supplying fish to CFG (which I suspect is either Perun or Alastir) based on the other article I shared earlier..

http://www.undercurrentnews.com/2012/11/...-payments/

perhaps can see it as, unless you are very very certain that the managment is honest with strong integrity, avoid companies that enjoy growing with leverage.

buffett has mentioned that some growth acquisitions are value destructive. Personally, i hate it when many of our reits buy more properties in the name of growing, the DPU will usually drop without leverage. Currently i am not vested in any reit.

Leverage doesnt change the nature of the investments. Leverage will only amplify the gains and losses.

[mrEngineer]

Sounds like to me there is bigger scheme behind all this negative news for Pacific Andes. Possibility of depressing stock price purposely for privatization or M&A?

http://www.undercurrentnews.com/2012/11/...an-assets/

Almost a sayonara if China Fishery do not agree to the Russian govt.

[yanziyang]

China Fishery bond down on Russia sales talk

The value of Pacific Andes fishing division China Fishery Group’s $300 million senior notes issuing has dropped on reports from Russia the company is having to sell assets in fishing companies, an investment manager told Undercurrent News.

When contacted for a comment by Undercurrent, a spokeswoman for Pacific Andes said a statement from the company would come soon.

News URL:
http://www.undercurrentnews.com/2012/11/...p-falling/

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MOSCOW, November 28 (RIA Novosti) – Russia’s foreign investment government commission has ordered China’s Pacific Andes fishing company to sell the Russian fishing assets it acquired in violation of the law, Federal Anti-Monopoly Service head Igor Artemyev said on Wednesday.

“We have made a decision today that the Chinese side must have permission if it wants to continue operations in the Far East. As there is no permission at present, the Chinese side should leave and sell its assets to Russian companies,” Artemyev said after a meeting of the government commission on foreign investment, where he holds the post of secretary.

Pacific Andes broke the law and the Russian government did not give it permission to purchase strategic assets of the Russian fishing fleet, he said.

Under Russian legislation, the fisheries are strategic sectors and foreign investment in the industry is allowed only with the approval of the government commission for control of foreign investment.

Pacific Andes gained control of Russian fishing assets through management agreements rather than share ownership where Russian shareholders were only nominal owners of quotas for fish catches while the Chinese firm was the main beneficiary, Artemyev said.

Foreign companies from Japan and Korea were also found to have illegally acquired the shares of Russian fishing companies and similar measures will be taken against them, the FAS head said.

At the same time, the government’s foreign investment commission offered Pacific Andes to consider joining Russian fish processing companies on the Russian shore.

“We would not like them [Pacific Andes] to leave completely. We would like them to work in adjacent areas,” he said.

From:
http://en.ria.ru/business/20121128/177797768.html

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Pacific Andes flags up risks of pollock pre-payments

So, the company has paid, in total, $478m with the fourth LSAs and the advance for the upgrades.

The prospectus acknowledges the risk that this money might not be recoverable.

“If Perun or Alatir fails to perform its obligations under our agreements with them, or if any of the agreements is terminated or determined to be invalid, or our suppliers are unable to perform their obligations because the vessel owning companies fail to or are unable to or are prohibited from performing their obligations to the suppliers, we may not be able to recover all or any part of the balance of the amounts already paid,” the prospectus states.

“If any supply agreement is terminated or determined to be invalid, or if we are unable to extend or renew it upon expiration, we would lose our access to the supply of fish from the contract supply vessels,” it continues.

http://www.undercurrentnews.com/2012/11/...LhLv9dy2f4