Wednesday, February 11, 2015

C'mere Fishy Fishy...

POW, China Fishery got slammed down with the announcement of their Rights issue.

They are doing a rights issue to have 4 shares sold at $0.173 for every 5 shares that you own.

When I bought China Fishery a few months ago, one of the things that I highlighted was that the management were intending to redeem their senior notes. This rights issue is specifically for that.

I am totally not surprised at this move that they are doing, so I find this "shock" by the market a bit strange actually. Perhaps the shock is due to the considerable amount of discount that they are issuing the rights at.

Another reason is probably due to their non-declaration of a dividend this year. Why should they pay a dividend if they are trying to raise cash to pay off bonds? I hope some of this selling is by people that really don't understand what is going on and is running away due to the steep drop and the lack of dividends. Weak hands move to strong hands.

If you read into the details, all the major shareholders (about 70%) have agreed to this rights issue. The board was 6/8 for the rights issue. Of the 2 dissenters, 1 thought that the discount was too deep, while the other thought that minority shareholders will be negatively affected if they do not participate in the rights issue.

Their operations are healthy, still generating a profit albeit less than last quarter. NAV has inched up mostly due to a larger decrease in liabilities although assets did drop as well. I will be glad when they can redeem their bonds. It's a huge 9.75% drag on their expenses.

I have got some more shares so I can lower down my average cost on this investment. I intend to participate in this rights issue. Paying down debt? Not issuing a dividend? This is how you properly manage your resources, no?

By my calculations post-rights issue, I shall have an average price of $0.212 and this will form 6.3% of my portfolio.


  1. Hi GMGH,
    this counter has 0.25 in PB and 0.03 for EPS. Its fundamental does not look very good.

    1. Hi Anon,

      I agree that the fundamentals look quite poor, but the valuations are very attractive!

      EPS itself is not very meaningful to valuations without price. P/E is under 6 at this point of time, with P/B reaching quite ridiculous levels of 0.25 as you mentioned!

      It's not easy buying something that is being beaten down, but that's the only way I know to buy low. It might not be a fantastic business, but the price is attractive to me. Strip it down, sell it for parts! I'd still make money, I hope, haha!

  2. They will keep doing rights issue once every few years, this stock is a value trap. Good luck, u will need it.

    1. Thanks for the tap on the shoulder Felix. I will be careful with this one and resist piling in the lower it gets!

  3. It is indeed a value trap...I don't know how many times China fishery and Pac andes did rights already. I swore off it long time careful and keep to a certain % of your portfolio. Don't average all the way down to kingdom come!

    1. Thanks LP for the warning, seems a lot of people haven't had good fortune with this stock. I will definitely be a lot more wary now with so many people giving words of caution!


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