China Fishery – FY2010 results improve; no concrete plan to call the bonds

China Fishery reported satisfactory result for fiscal year ended September 30, 2010 on higher sales volumes in the North Pacific trawling operations (+34%yoy to 231.600MT), higher fishmeal selling prices (+66.8%yoy to USD1,461/MT) and the maiden full year contribution from its South Pacific trawling operations, reports www.megafishnet.com with reference to China Fishery Group.

Revenue increased 10.4%yoy to USD539 million. China accounted for 70% of the revenue, followed by Japan and Korea at 13% in total and Europe at 10%. The remaining came from South East Asia, West Africa and other markets. EBITDA grew by 38.2%yoy to USD217 million and EBITDA margin improved to 40% from 32% as a result of higher operational efficiency. The company improved utilization and lowered cost of sales and vessel operating expenses after closing three fishmeal plants in Peru and reducing the number of vessels in operation in North Pacific and Peru.

As of September 30, 2010, total debt was USD406 million, compared with cash balances of USD35 million. It seems that the USD150 million proceeds from the placement to Carlyle Group were largely used. Total debt/EBITDA was very manageable at 1.9x. According to The Edge, the company is looking to make some acquisitions in Africa, which could represent between 20-30% of the company sales in next three to four years compared with 7% currently. Capex guidance from management for 2011 is at least USD150 million. While the company raised USD425 million at around 3.5% recently, it has no concrete plan to call back the China Fishery '13s at 104.625 on December 19.

In our view, the capex is likely to be a key consideration before the company decides to call the bonds. It seems the company should just do another low cost fund raising exercise, given its low leverage. The upside of the China Fishery ‘13s (B1/B+, 105.05 offer, 3.546%ytw) is capped at around the call price at around 104.625.