Seafresh Industry (CFRESH)
reported disappointing 4Q02 results with a Bt112mn loss.
This was due to a Bt152mn reserve for product devaluation
after the company had stocked finished goods as high as
Bt2,049mn or 281 inventory days. Excluding this
extraordinary items and forex gain, CFRESH posted normalised
profit of Bt37mn, which was stable with 3Q02.
We believe that CFRESH's jump
in sales was due to discounting prices, which left margins
at 11.5% against 30% in 4Q01. Despite the strong sales
growth, the company's inventory remained at the same level
as 3Q02. This means CFRESH continued to stock new inventory.
Full-year performance was
quite poor compared with 2001. Normalised earnings dropped
66% to Bt195mn with squeezed margin of 14%. Sales decreased
by 21% yoy as a result of the strengthening baht, concerns
about war and the chemical residue problem in March 2002.
Importers delayed orders, which brought about an oversupply
situation and price declines.
We are concerned about the
CFRESH's high inventory level even though the management
doesn't expect to set any further reserves for product
devaluation. Note that in 3Q02 the company also didn't
expect a provision to be made in 4Q02.
We are not forecasting any
further provision, but we have revised down our base
assumptions for 2003. Our revised forecast is for 2003
earnings of Bt148mn, which would put CFRESH shares on a PER
of 13.5x.
Given market concerns about
CFRESH's policy to manage its inventory, we believe that it
is too soon to rate the stock as a buy. At this time, we
recommend a HOLD on the stock.
