Trimming our FY13 earnings by 7%. China Fishery (CFG) is raising US$300m through Senior Notes at interest rate of 9.75% pa. The net proceeds will likely be used  for  (1)  prepayment  of  long-term  supply  agreements  (LSAs)  estimated  to cost between  US$145m  '  US$174m, as  well as (2) repayment of debt which  is estimated  at  US$117m. We  believe  the  net  impact  will  dilute  FY13  earnings  by 7%  to  US$141m.  We  are  positive  on  CFG  for  its  North  Pacific  operation  which has a strong track record of profitability. Key risk stems from its execution in the South  Pacific.  Currently  trading  at  4.7x  FY13  P/E,  CFG  appears  attractive compared  to  its  five  year  historical  mean  of  9x.  Maintain  BUY  with  lower  TP  of S$1.00 (from S$1.20 previously) based on 6x FY13 P/E.

Proceeds to be used for  new LSA  and debt repayment.  CFG intends to use the  proceeds  for  prepayment  of  its  4th  LSA.  Its  4th  LSA  is  currently  contracted under  a  daily  fee  but  negotiations  for  a  prepayment  option  are  ongoing.  CFG also intends to use the proceeds to repay US$117 of loans due this year.  

No  financial  impact  expected  on  new  LSA  terms  (from  VOA  terms).  CFG has replaced its four vessel operating agreements (VOAs) with long-term supply agreements (LSAs). We understand that this should not have significant financial impact  to  CFG  as  the  underlying  commercial  terms  remain  substantially unchanged.  Replacing  the  VOAs  with  LSAs  mainly  reduces  CFG's  role  in providing assistance to operations of the fishing vessels.

Valuations  attractive  trading  at  4.7x  FY13  P/E.  We  think  valuations  appear attractive  with  CFG  currently  trading  at  4.7x  FY13  P/E.  Our  TP  of  S$1.00  is based on FY13 P/E of 6x, which is 28% lower than its peer average of 8.3x, and a 33% discount to its five year historical average P/E of 9x. Maintain BUY.

Source: OSK