Kim Eng on 16 Mar 2012
Background: Pacific Andes Resources Development Ltd (PARD) sources, transports and supplies frozen seafood products to the international markets, focusing on the frozen fish supply chain management business. It is also the controlling shareholder (58%) of China Fishery Group Limited (CFG SP).
Recent development: PARD announced last week that it will undertake a 1-for-2 rights issue at S$0.14 per share to raise about S$220m. The rights pricing is a 39% discount to its closing share price then of S$0.23. The share price has since declined by 13% and the stock goes ex-rights today.
Palpable frustration. The level of frustration among investors over the dilution from PARD’s rights issue was palpable at a recent company briefing. It was its third rights issue after two 1-for-1 issues in 2007 and 2009 at S$0.52 and S$0.15, respectively.
Up against a stone wall. Management was vague and non-committal on the purpose of the fund-raising, except to say that it was for potential acquisitions and working capital. It reiterated that the funds were not meant to cover debt repayments and that the company is comfortable with its net gearing level of approximately 80%.
Test of investor confidence. PARD’s profitability and macro fundamentals are still positive, as highlighted in our report in February, 2012 Small Caps: Not stopping the love. While we concede that its business is built on scale which requires large amounts of working capital, this round of rights issue out of left field will severely test investor confidence.
Showing posts with label Pac Andes. Show all posts
Showing posts with label Pac Andes. Show all posts
March 16, 2012
February 13, 2012
Pacific Andes
OCBC on 10 Feb 2012
Summary: Pacific Andes Resources Development Ltd (PARD) announced a 41% YoY increase in 1QFY12 revenue to HK$2451.3m. Net profit improved 38.6% to HK$139.6m. China remained the biggest market and accounted for 73% of group revenue. The Chinese government recently reduced duties payable on a range of commodities and food products, and this should have a favourable impact on its fishery products. The group looks poised to enjoy better operational efficiency and better earnings outlook in China. We reiterate our BUY rating and raised our fair value estimates from 26.3 cents to 31.7 cents.
Good set of 1Q results
Pacific Andes Resources Development Ltd (PARD) posted a good set of 1QFY12 results. Revenue rose 41% YoY (down 4.3% QoQ) to HK$2451.3m. Net profit improved 38.6% YoY to HK$139.6m. The increase was largely due to the frozen fish SCM division, which saw a sharp 75.6% YoY rise in revenue to HK$1,470.0m as a result of higher average selling prices and higher demand. This accounted for 60.0% of total revenue. Revenue from the fishing division increased 9.3% YoY to HK$981.3m. However, margin from this unit was affected by higher prices carried over from the previous quarter.
Several positives for 2012
Having cleared its inventory from the previous quarter in 1Q12, there are several positive developments ahead, including lower duties in China – its key market which accounted for 73% of group revenue in 1Q12. The Chinese government has recently reduced duties payable on a range of commodities and food products, and this should be positive for PARD’s fishery products. In addition, healthy consumption in China should support demand.
Operational improvements
Average selling prices generally improved in 1Q and are expected to hold for the rest of the year. We expect increasing contribution to come in from its still-new South Pacific fishing operation in FY12. For its fishmeal operation, this will enjoy higher quota following two acquisitions in late 2011. After last year’s investment into improving its facilities in North Pacific and Peru, the group should be able to enjoy better operational efficiency.
Reiterate BUY, increasing fair value to 31.7 cents
We have adjusted our FY12 earnings from HK$706m to HK$731.m, up 4%. The stock has traded within a PER band of 5-9x in the last three years. While we have pegged its valuations at 6.5x previously, we are increasing it to 8x on better earnings prospects and cost savings. Similarly, we raised our fair value estimate from 26.3 cents to 31.7 cents. Yield is decent at 5.7%. BUY.
Pacific Andes Resources Development Ltd (PARD) posted a good set of 1QFY12 results. Revenue rose 41% YoY (down 4.3% QoQ) to HK$2451.3m. Net profit improved 38.6% YoY to HK$139.6m. The increase was largely due to the frozen fish SCM division, which saw a sharp 75.6% YoY rise in revenue to HK$1,470.0m as a result of higher average selling prices and higher demand. This accounted for 60.0% of total revenue. Revenue from the fishing division increased 9.3% YoY to HK$981.3m. However, margin from this unit was affected by higher prices carried over from the previous quarter.
Several positives for 2012
Having cleared its inventory from the previous quarter in 1Q12, there are several positive developments ahead, including lower duties in China – its key market which accounted for 73% of group revenue in 1Q12. The Chinese government has recently reduced duties payable on a range of commodities and food products, and this should be positive for PARD’s fishery products. In addition, healthy consumption in China should support demand.
Operational improvements
Average selling prices generally improved in 1Q and are expected to hold for the rest of the year. We expect increasing contribution to come in from its still-new South Pacific fishing operation in FY12. For its fishmeal operation, this will enjoy higher quota following two acquisitions in late 2011. After last year’s investment into improving its facilities in North Pacific and Peru, the group should be able to enjoy better operational efficiency.
Reiterate BUY, increasing fair value to 31.7 cents
We have adjusted our FY12 earnings from HK$706m to HK$731.m, up 4%. The stock has traded within a PER band of 5-9x in the last three years. While we have pegged its valuations at 6.5x previously, we are increasing it to 8x on better earnings prospects and cost savings. Similarly, we raised our fair value estimate from 26.3 cents to 31.7 cents. Yield is decent at 5.7%. BUY.
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