Acquisition would turn CFG to Peru's largest producer of fishmeal and oil. CFG has been  acquiring  Peru  fishmeal  companies  over  the  past  few  years  (two  Peru  fishing companies  in  Nov  11,  and  Pesquera  Alejandria  in  May  10)  but  Copeinca  would  be  its biggest yet. Copeinca would increase CFG's North and Central Peru quota by 10.7ppt to 16.9% and South Peru quota by 3ppt to 14.7%. We believe this acquisition could generate synergies between the two companies given the overlapping principal business activities.

Proforma EPS decline post acquisition. Based on FY12 proforma numbers, EPS would decline  from  USD7.64¢  to  range  between  USD5.26¢  -  USD6.70¢,  depending  on  the subscription and GO scenario.  

Greater dilution if acquisition falls through. If the acquisition of Copeinca falls through, the  rights  issue  will  still  proceed  and  assuming  a  minimum  subscription  scenario, shareholders  will be looking at a 50% fall in CFG's FY14 EPS. However,  CFG's  balance sheet  would  be  strengthened  with  FY14  net  gearing  possibly  falling  from  0.34x  to  0.03x. We see this as an unlikely scenario as we believe the acquisition will proceed.      

Maintain  NEUTRAL,  41.5%  shareholder  support  to  push  deal  through.  We  are maintaining our NEUTRAL call and TP of SGD0.65 on assumption that the deal proceeds. This is on the back of CFG's management stating  that  they  have  indicative  support  from 41.5% of Copeinca shares. We think positive catalysts could come from still high fishmeal prices as well as synergies from consolidating its businesses in Peru.

Source: OSK