Above expectations. 4Q09 core net profit of HK$341.4m (+55% yoy) beat our estimate of HK$198.4m and consensus of HK$207.5m. 4Q09 reported profit of HK$361.6m was inflated by a HK$20.2m one-off profit from a US$5m convertible bond buyback. FY09 core net profit of HK$627.6m forms 129% of our estimate and 127% of consensus. The main reasons for the divergence were higher sales, wider gross margins from the volatile SCM business, lower-than-expected operating expenses, and a tax rebate from fishmeal operations. Management also proposed a renounceable rights issue with warrants.
Sales rose 11% yoy to HK$2.4bn, backed by resilience in the SCM business and front-loading by CFG due to the earlier start to the Alaskan Pollock fishing season, and higher pollock prices. Gross profit rose 23% to HK$637m as gross margins widened to 27% from 24% with SCM gross margins almost doubling from 8.4% to 15.7%, overwhelming a drop in CFG’s margins to 35.6% from 44.6%. Profits were also inflated by a tax rebate of HK$37.3m, related to losses in the fishmeal business.
1-for-1 rights issue plus warrants. Management has proposed a renounceable underwritten 1-for-1 rights issue at S$0.15 to raise up to S$223.6m (assuming shares from the convertible bonds are converted) net of expenses, and one warrant for every five rights subscribed, at an exercise price of S$0.23, which could potentially raise another S$70.1m.
Raising FY10-11 core EPS estimates by 5-17%, as we lift our estimates for SCM sales and margins. Our FY10 estimate is lower than for FY09 due to a lack of tax rebates for fishmeal operations, and the assumption of more even earnings spreads from CFG. FY10 reported profit forecast includes a HK$18m gain from an additional US$4.5m convertible bond buyback. We also introduce FY12 estimates.
Downgrade to Neutral from Outperform; cum-rights target price raised to S$0.53 (from S$0.36). Given our recently-raised target price for CFG (S$1.29 exbonus) and higher profit estimates for the SCM business, our cum-rights-andwarrants sum-of-the-parts target price has been lifted to S$0.53. Post-rights dilution, our target price will fall to S$0.26. The theoretical ex-price is S$0.23. Downgrade to Neutral due to limited upside to our target price ex-rights.
Sales rose 11% yoy to HK$2.4bn, backed by resilience in the SCM business and front-loading by CFG due to the earlier start to the Alaskan Pollock fishing season, and higher pollock prices. Gross profit rose 23% to HK$637m as gross margins widened to 27% from 24% with SCM gross margins almost doubling from 8.4% to 15.7%, overwhelming a drop in CFG’s margins to 35.6% from 44.6%. Profits were also inflated by a tax rebate of HK$37.3m, related to losses in the fishmeal business.
1-for-1 rights issue plus warrants. Management has proposed a renounceable underwritten 1-for-1 rights issue at S$0.15 to raise up to S$223.6m (assuming shares from the convertible bonds are converted) net of expenses, and one warrant for every five rights subscribed, at an exercise price of S$0.23, which could potentially raise another S$70.1m.
Raising FY10-11 core EPS estimates by 5-17%, as we lift our estimates for SCM sales and margins. Our FY10 estimate is lower than for FY09 due to a lack of tax rebates for fishmeal operations, and the assumption of more even earnings spreads from CFG. FY10 reported profit forecast includes a HK$18m gain from an additional US$4.5m convertible bond buyback. We also introduce FY12 estimates.
Downgrade to Neutral from Outperform; cum-rights target price raised to S$0.53 (from S$0.36). Given our recently-raised target price for CFG (S$1.29 exbonus) and higher profit estimates for the SCM business, our cum-rights-andwarrants sum-of-the-parts target price has been lifted to S$0.53. Post-rights dilution, our target price will fall to S$0.26. The theoretical ex-price is S$0.23. Downgrade to Neutral due to limited upside to our target price ex-rights.
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