Up from the deep

Shares in fishery firm surge after suffering from Indonesian ban


Netting gains

At Chinese New Year when families gather for dinner, it is traditional to have at least one serving of fish. The Chinese word for fish, yu, is a homophone for the term meaning ‘surplus’. The superstition is that starting the year with yu brings yu to other areas of life, implying wealth and fortune.

Pingtan Marine Enterprise has made its own fortune from fish and in February this year the Nasdaq-listed company was crowned as the top Chinese performer on the bourse after its shares soared 320% from the previous November.

Truth be told, Pingtan’s shares had sunk like a stone over the previous six quarters after Indonesia prohibited foreign economic activity in much of its waters.

Pingtan – the operator of China’s second largest fishing fleet – was torpedoed because the majority of its business was conducted in Indonesian seas and it suffered a substantial drop in production.

The ban has now been lifted but reports this month from Undercurrent News suggested that a large proportion of Pingtan’s 135-ship fleet has been sitting in ports since it was first implemented.

Indonesia’s action forced Pingtan to look elsewhere, sealing new partnerships for fish permits from East Timor and sending its boats further out into Indo-Pacific waters.

By the start of the year it said it had about a third of its vessels operational, which returned the company to profitability and drove up the share price.

It is not uncommon for Chinese fishing boats to operate far from their native ports – and not always legally. In the past the Indonesians have blown up Chinese ships caught fishing illegally and Chinese trawlers have been sunk as far away as Argentina for unlawful conduct (see WiC320).

At the root of the problem is China’s depleted fisheries. In 2014 the State Oceanic Administration found that 81% of monitored coastal water was polluted, killing the fish. The scarcity encourages heavier trawling, which damages the ecosystem and depletes stocks further.

In a bid to preserve their fish stocks, the Chinese periodically announce bans on boats from other countries from fishing in the South China Sea. The latest moratorium will extend from May 1 to August 16, when the Chinese intend to impose restrictions inside the “nine-dash-line” which delineates the area Beijing believes to be under its jurisdiction. This line overlaps with the exclusive economic zones of other nations and so there likely to be loud protests from China’s neighbours when the measure begins.

According to Bloomberg, fish stocks in the South China Sea have fallen by 95% since the 1950s. However, demand for seafood is rising and the Economic Observer says changes in the Chinese diet are one of the reasons why the marke for fish sales could double again.

To combat overfishing the Chinese authorities have been restricting grants of new offshore licences, which benefits the established operators like Pingtan. It also plans to add new revenue streams by acquiring foreign fishing firms and building a processing plant in Fujian with 500,000 tonnes of annual capacity. After the plant begins operations the ambition is to build a trusted fish brand for Chinese consumers – and boost margins.

Indeed, company insiders have been bullish about Pingtan’s prospects. “If the plans for international M&A, retail brand marketing and other factors are all added to the calculation, earnings per share can reach at least $2,” company CFO Yu Yang told the Economic Observer. That would make Pingtan’s shares quite a catch – the company’s most recent guidance was for earnings per share of just $0.08.

Meanwhile the Financial Times ran a lengthy report this week on why China’s vast fishing fleets are able to range so far afield – putting it down to government subsidies on the diesel they use. The fear now, says the FT, is that Chinese fleets are overfishing squid. Coincidentally, Pingtan announced this week its purchase of four ‘squid-jigging’ vessels in response to new highs in squid prices.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.