China Fishery Group

DBS Group Research on 20 Sept 2012

WHILE China Fishery Group (CFG) trades at a cheap valuation, there are fresh uncertainties in the form of regulatory risks from Russia that can affect its earnings. Russian authorities are investigating foreign companies establishing control over Russian fishery companies. Russia accounts for about 54 per cent and 64 per cent of the group's revenue and earnings before interest and taxes, respectively, in FY2011.

CFG operations do not infringe on Russian laws under its current supply agreements and are undisrupted currently. However, in the event that the related Russian fishing companies are penalised, there can be an impact on supply of fishes to CFG.

We estimate that a 10 per cent drop in fish volumes or sales could have a 9.5 per cent impact on FY2013 earnings, all things being equal. Thus, we downgrade the stock to "hold" from "buy" with target price at $0.72 from $1.15, based on five times FY2012/13 forecast earnings.

HOLD