Pacific Andes Resource Development - Buy by OCBC (20 Nov 09)

Lafayette - a great enhancement in South Pacific. We visited Pacific Andes Resources Development's (PARD, formerly known as Pacific Andes Holdings) latest addition - China Fishery Group's (CFGL) key flagship factory vessel christened as the Lafayette. The 228-metre long Lafayette can freeze up to 1,500 tonnes of fish per day and will be deployed to the South Pacific before the end of this year. This vessel will play a strategic role as the group positions itself for future fishing opportunities in the South Pacific. With the addition of the Lafayette, this brings CFGL's total fleet tonnage to 85,000 tons in the South Pacific. This could potentially mean a future 20- 25% market share of the Chilean Jack Mackerel market as the group gears up to participate in more fishing activities in the region before the implementation of the quota system (which is likely to be based on historical catch volume and gross tonnage).

Chilean Jack Mackerel likely to see wider human consumption. This could provide substantial organic growth for the group, which will filter up to PARD. Currently, demand for Chilean Jack Mackerel is mainly in the West African countries, but management is of the view that there will be increasing human consumption of this fish, and this will enhance the value of this fish, which has grown from less than US$600 per ton in 2001 to about US$1000 per ton (CIF) currently. Presently, the Chilean Jack Mackerel is the seventh most harvested fish species.

Fish is still a popular source of protein. According to the FAO, global demand for seafood will exceed supply from 2001 to 2015. Supply is estimated at 172m tons versus demand of 183m tons by 2015. The consumption of fish per capita in China is also expected to rise, increasing from 25.6kg in 2003 to an estimated 34kg by 2030. With the global movement towards healthier food choices, we expect fish demand to remain healthy.

Still a BUY. The group has changed its financial year end to 28 Sep (for both PCRD and CFGL). With this change, the next set of results is due out on 27 Nov 2009 which will cover the six-month period till 28 Sep 2009. We have made some changes to reflect the change in year-end, but our forecasts remain fairly unchanged pending the release of its results next week. We are also maintaining our BUY rating and fair value estimate of S$0.31.