DBS's catch

Pacific Andes
Another good catch in a seasonally weaker quarter
PAH’s 3QFY06 results exceeded our expectations. Net profit rose 90.3% y-o-y to
HK$34.9m, underpinned by 22.1% y-o-y revenue growth to HK$662.4m. Given the
increased scalability of its integrated business model, we are optimistic of the
Group’s growth and earnings momentum. We expect its strongest quarter
(4QFY06) to be stronger than expected, and have raised our FY06-07 earnings
estimates by 2.7% and 3.0% respectively. We also upgrade our recommendation
to Strong Buy, given the increased visibility of a record net profit. PAH has
historically traded at between 8-12x PE; we price it at the median, or 10x FY07
earnings to derive a raised target price of S$1.02. This is further supported by our
DCF valuation of S$1.32.
• 3QFY06 exceed expectations. PAH’s seasonally weak second and third quarter (of its
financial year) had been above expectations. Operationally, Group revenue and net profit were driven by strong demand for frozen fish products, which helped to maintain higher selling prices. Gross and operating margins improved by 1.2ppt and 3.1ppt respectively, reflecting the scalability of PAH’s integrated business model with greater cost efficiencies.
• Making inroads into N. America and W. Europe in 3QFY06. Sales to the North American
market grew 104.8% y-o-y to HK$77.2m, while sales to Western Europe reached HK$49.6m,
growing 154.4% y-o-y.
• Expect record net profit for FY06. We are optimistic of the Group’s growth and earnings
momentum, given the scalability of its integrated business model. With 4QFY06 expected to be very strong, we raised our FY06-07 earnings estimates by 2.7% and 3.0% respectively.
We also upgrade our rating to Strong Buy given the increased visibility of a record net profit.
Given PAH’s historical trading range 8-12x PE, we price it at the median, 10x FY07 earnings to derive a raised target price of S$1.02. This is further supported by our DCF valuation of S$1.32.