Sunday, January 24, 2010

Pacific Andes - Buy by OCBC

CFG to seek secondary listing on Oslo. Pacific Andes Resources Development's (PARD) subsidiary China Fishery Group (CFG) announced yesterday that it is seeking a secondary listing on the Oslo Bors (the Oslo exchange). This will be carried out via an offering of new shares. The group said that it intends to target both retail and institutional investors in Norway.

Higher valuation on the Oslo market. One of the key rationales for the secondary listing is that the Oslo exchange is the listing venue for 17 listed seafood/fishing companies. As a result, there is better investors awareness and the possibility of higher valuation multiples (or an average of about 10-13x for seafood companies listed there). With better investors' awareness, there is also the possibility of tapping into this pool of ready investors who are familiar with seafood/ fishing companies. This dual listing, if approved, will also allow the stocks to be traded at different time zones in addition to providing another channel for additional equity fund raising for future expansion.

Prospects remain healthy. CFG's vessels are ready to commence fishing in Feb. Management expects this year to be "the year of significant growth". We believe this will come from higher utilisation of its fishing assets as some have been re-deployed to the South Pacific to enhance its total group catch volume. In addition, worldwide consumption of seafood remains good due to the preference for healthier food alternatives.

Positive move; maintain BUY and raised fair value to S$0.40. This move, if approved, is positive as it offers the possibility of higher valuation from a market that is more familiar with the dynamics and the demand trends of the seafood/ fishing industry. CFG has moved up about 37% from three weeks ago versus only 18% for PAH even though it is the majority shareholder. In addition, the sum-of-parts calculation shows that PARD's stake in CFG is now worth more than its own market capitalisation. This is not justifiable, and there is a possibility for this gap to narrow as we believe a re-rating should also be accorded to PARD. We have upped our valuation to 8x earnings (from 6x) to be in line with other listed F&B/ consumer stocks although most have flat or negative growth versus growth of more than 30% for PARD in FY10. We are retaining our BUY rating and raising our fair value estimate to S$0.40 (up from S$0.31).

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