Pacific Andes (1174 HK, HK$1.53): South Pacific expansion going well

We visited the company’s two processing plants (Xinxing and Hongdao) and a factory vessel (Lafayette) in Qingdao last week.  

• Filet processing: The new Hongdao complex is impressive. Short-term profitability could be a slight concern given relatively high investment (~US300m) and operation overheads (e.g. staff costs at RMB100+m). Nevertheless, food traceability is likely to be a future trend based on our observation. The Hongdao plant, therefore, should contribute the company in long run by capturing this rising need, though it has little enhancement on selling price in near term.
• South Pacific operation: the factory vessel will be used as a processing platform to release other fishing vessels from this kind of operation, which will then apparently enlarge the overall efficiency. Mass operation will commence next year and we expect it to be a major driver in coming two years.

As the Hongdao plant is a bit behind our expectation, we are currently reviewing our model. However, as the entire processing business accounts for <20% of total operating profit (18.4% in FY03/19A), the potential adjustments should not be material.