Strong tuna prices to boost Dongwon's revenues

News 14:46 29/06/2012 KT
(IntraFish) Dongwon's earnings are expected to rebound in the second quarter due to high tuna prices and catch expansion.

Korean fishing giant Dongwon Industries' earnings are expected to rebound in the second quarter of 2012 due to strong tuna prices and catch expansion, according to a report by KDB Daewoo securities.

After stagnating for a year, Dongwon’s second quarter revenues are forecasted to jump by 29.7 percent year-on-year to KRW 194.7 billion (€132.4 million/$165.9 million) and its operating profit to rise by 87.5 percent year-on-year to KRW 34.2 billion (€23.3 million/$29.1 million), said Daewoo securities analyst Baek Woon-mok.

Tuna prices in 2012 are expected to stay strong. It rose 31.3 percent year-on-year to $2,000 per metric ton in the first quarter and is likely to increase 17.2 percent to $2,080 per metric ton in the next quarter.

The high tuna price forecast is due mainly to supply shortages and a potential ban on fish aggregating devices (FAD) from July to September. Dongwon’s second quarter catches are expected to jump by 18.3 percent to 41,000 metric tons.

Given that Dongwon’s catches reached 16,000 metric tons in April and 13,000 metric tons in May, the company’s monthly catch average is likely to exceed the 12,000 to 13,000 metric ton level in the second quarter, said Baek.

During the third quarter of 2011 to the first quarter of 2012, there was a 40 percent year-on-year plunge in catches due to La Niña, which causes sea surface temperatures across the eastern and central Pacific Ocean to be 5 degrees Celsius lower than normal for over five months.

However, as La Niña has not been a factor this year, the company’s catches have normalized, said Baek. Dongwon’s 2012 catches are expected to expand by 8.4 percent given that La Niña is not expected to re-emerge this year given its four-year cycle.

Falling oil prices should lead to higher profit margins as well, considering that Dongwon’s annual fuel costs total KRW 100 billion (€68 million/$85.2 million).

In addition, earnings at canned tuna giant Starkist, which Dongwon holds a 60 percent stake in, are likely to improve as the brand will be increasing its canned tuna prices.

Dongwon has been closely managing Starkist this year, and its profits have swung to positive in the first quarter and it is likely to see profit expansion in the second.

Overall, Dongwon is forecasted to post revenue growth of 15.8 percent and operating profit growth of 43.3 percent in 2012. Daewoo is maintaining their call to buy Dongwon’s shares with a target price of KRW 230,000 (€156.4/$196).

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