Pacific Andes Resources Development

OCBC on 10 Aug 2012

Pacific Andes Resources Development (PARD) posted a 43% YoY drop in 3QFY12 net earnings to HK$146.1m or 19% of our full year estimate and is in line with our expectations. Fishery & Fish Supply accounted for about 47% of revenue with the balance from the SCM business. We are keeping our FY12 estimates intact. While fish consumption is fairly defensive and unlikely to be affected by the global economic slowdown, pricing is likely to soften due to uncertain economic outlook and market conditions. We are retaining our fair value estimate of 17.8 cents and BUY rating. Yield is still healthy at more than 7%.

Slow quarter with 3Q net earnings of HK$146m
Pacific Andes Resources Development (PARD) posted a 43% YoY drop in 3QFY12 net earnings to HK$146.1m. This formed about 19% of our full year estimate or a total of 78% for the 9-month period – which is fairly in line with our expectations. Revenue dropped 15% YoY to HK$2530.1m. However, net margin fell from last year’s 8.6% to 5.8% in the quarter. Fishery & Fish Supply accounted for about 47% of revenue with the balance from the SCM business. The former saw a drop in gross margin from 38.5% last year to 26.9% this year. For the 9-month period, revenue was up 16% to HK$8302.7m, while net profit was flat at HK$618.8m.

South Pacific is still not meeting expectations
Management has acknowledged that the catch volume from the South Pacific is not up to expectations despite the potential size there. It is continuing with its strategy of better utilisation of vessels via re-deploying its assets to better yielding fishing grounds. Funds from the recent Senior Notes will be deployed in the coming months and are likely to be utilised to strengthen its business.

Retain FV, but limited near to medium term price drivers
As the 3Q results were largely in line with our estimates, we are retaining our fair value estimate of 17.8 cents. While fish consumption is fairly defensive and unlikely to be affected by the global economic slowdown, pricing, which has already eased in 3Q12, is likely to soften. Risks of this happening have increased especially in view of the still-uncertain economic outlook. As such, we do not see any near to medium term price impetus. However, yield is still healthy at more than 7% based on the last done price of 14.8 cents. Maintain BUY.