om a fixed daily fee to a prepaid fixed fee. China Fishery (CFG) has announced that it has replaced its 4th Long Term Supply Agreement (LSA) which previously consisted of a fixed daily fee of US$12k per vessel, with a new LSA that now consist of a prepaid fixed fee of US$150m for six super trawlers up till 30 Sep 2030. CFG's three other LSAs currently run on a prepaid fee structure.

New 4th LSA expected to result in cost savings. The US$150m prepayment will be funded from proceeds that were raised through senior notes issued in Jul 12 (See our China Fishery report titled 'Raises US$300m through Senior Notes' dated 26 Jul 12). We estimate net savings to amount to c.US$3.9m annually (or c.3% of FY13 PATMI). Maintain BUY with TP of S$1.00 based on 6x FY13 P/E. We believe valuations are cheap with CFG currently trading at 4.5x FY12 P/E. Downside risks to our call are regulatory related and pertains to allegations of CFG violating certain laws and regulations of the Russian Federation.

Source: OSK