DBSVickers Report - 18 March 2008

Pacific Andes BUY S$0.485;

Bloomberg: PAH SP Worth more than it is
Price Target : 12-Month S$ 0.92
By: Andy Sim +65 6398 7969

Story: Despite the volatility and risk aversion seen recently in the equities market, we believe Pac Andes presents good value at the current price.

Point: Fundamentally, operations and growth for Pac Andes is intact. Growth should continue to be driven by its fishing division (through a 64. % stake in China Fishery Group) and supplemented by its Frozen Fish Distribution. Global annual demand for fish is expected to balloon by 50m tonnes to 183m by 2015, from c. 133m in 2001, according to FAO (Food and Agriculture Organisation). Based on historical data, global fish supply has been supported by growth in aquaculture (1990 – 2005 CAGR of 9.2% vs total global fish production CAGR of 2.9%). Growth of global wild caught fish was relatively flat due to “full or over-exploitation” of wild fishes (CAGR of 0.67%). CFG seems well poised to benefit from the above-mentioned trends due to their presence in trawling and fishmeal operations, in our opinion. The current price of S$0.485 is trading even below the market value of its effective stake in CFG. Market value of its 64% stake in CFG (at S$1.60 share) is worth about S$802m or S$0.60/share. Adding this to our estimate of its frozen fish business, valued at S$0.06/share, our estimate for sum-of-the-parts valuation shows a value of S$0.60/share (after assuming a 10% holding company discount).

Relevance: Valuations are undemanding at 6.4x FY08F and only 5.4x FY09F earnings. Reiterate Buy, with our target price maintained at S$0.92, pegged at 10x FY09F PER. At current levels, counter is trading at parity to FY08F book value. Downside price risk should be protected by a forecasted dividend yield of 4.5% for FYE Mar 08. We also introduced FY10F forecasts. Catalysts for this counter could come if and when CFG successfully re-negotiates its 4th VOA to terms on a pre-payment basis, which should be more cost efficient than the current fixed daily charter hire.