http://business.inquirer.net/money/tops ... -ails-Tuna
What ails Tuna?
By Den Somera
Philippine Daily Inquirer
First Posted 21:22:00 02/01/2010
Filed Under: Food, Consumer Issues
JANUARY ENDED AS A BIG DISAPPOINTMENT. One stock that ended similarly for the period was Alliance Tuna International Inc. (TUNA).
Plummeting like a falling hard rock, TUNA’s share price was already down 18.26 percent last Friday, Jan. 29, from its trading high of P2.08 at the start of the year.
The overriding reason that may fundamentally explain for the poor performance of the shares of TUNA is said to be about the implications of the decision to close part of the western central area of the Pacific Ocean from fishing operations involving high pocket fishing, Philippine payaw fishing and purse seine fishing—all of which are high volume-catch methods—by the Western and Central Pacific Fisheries Commission (WCPC).
According to the Socsargen Federation of Fishing and Allied Industries (SFFAI), the closure that started last Jan. 1, 2010, will significantly affect the country’s tuna catch to about 10 to 20 percent.
This hurled TUNA share prices downward to an almost vertical fall since then. Two big factors that broke market momentum was of the claimed decision of one government-controlled agency to halt its effort to buy some 10 to 15 percent of the company followed by the unloading at P1.92 a share of some 32 million shares (equivalent to 5 percent of outstanding shares) held by one of the company’s major local suppliers.
Story behind the story
The fishing ban was an issue raised by the European Union (EU), the world’s biggest market for canned tuna itself. It expressed concern on protecting the area from over-fishing; that, therefore, fishing activity in that area must slow down.
Along this policy, all tuna sales to the EU market now need a “catch certificate” in lieu of the old requirement that only dealt on the physical condition of the fish through a “health certificate.”
The truth of the matter, according to sources in the fishing industry, is that this is nothing but a classic case of protectionism. An EU member-country, who happens to be the biggest seller of tuna in the EU market, is said to be smarting from competition coming from the western central Pacific region. The target was to decrease the catch of the salacious “big eye” tuna and to limit the level of catch of the equally delicious “yellow fin” tuna that is probably hurting the sales of the EU member-country. Interestingly, the affected EU-member country is no other than the one whose spoken language used to be the country’s “lingua franca” and which pockets of communities here in Luzon and Mindanao still proudly use in vulgate form.
I got some insights into what TUNA has done and is doing about the situation to maintain its profitability and growth prospects.
TUNA says that the WCPC decision is not hurting them. Supply for their requirement is the “skip jack,” which is plentiful from other sources. This may explain why the country’s two other big canned tuna players, Century and Philbest, are not whining, too.
Also, there is a strong opinion contrary to the issue of the EU about the subject area. Thus, though the ban is for two years, it is open for review at the end of one year.
Be that as it may, TUNA had anticipated this familiar “old boys’ club” politics in world fishing that in February 2008, it bought a tuna fishing and canning company in Indonesia to ensure fish supply; a nonsignatory country of the WCPC. Indonesia has a good tuna fishing ground at its equatorial line along the China Sea side of the Philippines. The tuna fish is proven to travel along the earth’s equator.
After spending about $4.5 million to have a capacity of 100 tons, the outfit was put to commission in July 2009. As of the end of 2009, without quoting specific numbers for fear of being fined for premature and improper disclosure, management is confident that bottom line will again be exceptionally in the black. This is because they have managed to double the desired “net income per container” standard of the industry of $1,200 to $2,400. This net income will even increase as their people in Indonesia will get to know how the Philippine operation has managed to efficiently become more profitable.
Bottom line spin
Under current circumstances, TUNA says it will just stay easy at the 90-ton 2009 capacity level for its local operation in 2010. Essential growth in 2010, however, will be provided by the impact of the full-year operation of the additional 100-ton Indonesia plant.
When asked how these will translate into peso earnings, TUNA’s answer was something like “Wait for our 2009 fourth quarter report in April. It contains part of the Indonesia plant potential. Our revenues have been growing steadily by some 25 percent yearly since getting listed six years ago [without Indonesia]. We should be doing better.”
Factoring existing numbers with these developments, TUNA’s 2009 EPS should total to about P0.25. At last Friday’s closing price of P1.70 a share, this should amount to a price earnings multiple of 6.8 times. This will go lower as the full impact of the Indonesia plant will come into play in 2010.
On top of this, it appears that TUNA has already chartered its growth path after 2010. As previously disclosed it has completed the takeover of a salmon fishing and canning company in New Zealand. (Salmon is a high-value product which the company expects to bolster profit margins.). TUNA is confident that the New Zealand plant will be on stream by the fourth quarter this year.