Pingtan Marine: A Hefty Catch

Time for an update on one of my top five picks, Pingtan Marine (PME). I spoke with the CFO last week to get an update after their annual earnings report and filings, etc., and remain comfortable with the name. I first reeled it in last November in Long Shot: Fishing for Profits. The stock is up 21% since that recommendation, but I believe it has farther to go. PME Chart Source: Yahoo Finance View Chart » View in New Window » The story at Pingtan is simple, and getting simpler (in a good way). This China-based company operates a fleet of 120 fishing vessels fishing in the Andaman Sea and Bay of Bengal. The haul is returned to the company's processing warehouses in China, then sold wholesale into the local market. A key competitive advantage for Pingtan is that a license is required to bring the fish into China. Each boat they own has a license, which often costs more than the boat itself and limits competition. The investment thesis in PME is that it is an undiscovered quality name in a group that is generally disliked by U.S. investors (non-Internet Chinese stocks), yet it is making all the right moves to give investors a high level of confidence in its operations. The effort is being led by their CFO, who is sophisticated and understands the U.S. capital markets. The company originally came public as a Deutsche Bank-led SPAC, and was very complex as it operated the fishing business and an unrelated dredging business. They divested the dredging business, and are focused on growing the fishing business downstream into wholesale and branded retail sales. The fishing business is very stable and predictable. The fleet size is known, the average operating hours, catch and revenue per boat are stable, as are the costs. Fuel costs fluctuate obviously, but the labor cost is fixed and other items like maintenance follow predictable patterns. The nature of the business gives me high confidence in the annual guidance that the company offers to investors. PME is making several moves that should increase investor confidence this year. They are likely to engage new auditors that are better known to U.S. investors. They will also start doing investor meetings and non-deal roadshows in the U.S., in order to introduce the story to potential new buyers. Their effort will almost be like an IPO, the one they didn't have two years ago. The investor awareness will be welcome for a story that is undervalued, yet stable and growing. The company has reiterated its guidance of net income in 2014 of $85 million, and there should be additional growth in 2015 as the retail business kicks in. At 3x 2014 earnings, I think the stock is dirt cheap. Should it trade to even a 10x price-to-earnings ratio -- not unreasonable given the nature of the business -- that would represent a 225% return. Those are the sorts of profits I will net all day long. A side note: My girls have spring break this week and we are traipsing about the Golden Triangle in India. (Yes, my year of living dangerously continues, after Vietnam in the winter!) I will report back later on my thoughts on this most important of emerging markets. The governor of the central bank of India has been making some waves with his criticisms of Federal Reserve policy and the disruptive capital flows it is causing in emerging economies around the world. I am sympathetic to that view; it will be interesting to see the impact if any on the ground.

Pingtan Marine: A Hefty Catch

I will net a 225% return all the day long.

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