A new speculative turnaround selection.

CFRESH  is a more speculative stock whose fundementals seem to be improving.  Lower US import taxes and the weaker Baht vs. US$ currently are helping the company to recover.

No question, CFRESH (3.28) is a local leader when it comes to exports of frozen Tiger Prawns. The company looked like it was in trouble early this year when it looked like Thai shrimps would not sell anymore in the US due to import taxes. The US is by far CFRESH's biggest single market.

Then last week, perhaps unnoticed by all the noise of the latest Bank induced sell-off, the US ruled to only levy a 6.39 % tax on US imported Thai shrimp; this compared to more then 36 % for shrimp coming from Brazil and other competitor nations (see below). 

Based on this good news, giant CPF released positive news in planning to expand its shrimp production. CPF is going all out by calling next year "the golden year for Thai shrimps". CPF (3.64) included in my large cap model portfolio, is far less direct shrimp play than CFRESH.

CFRESH was trading well above 5 Baht a share not so long ago. When it dropped below 2.5 in May TISCO and others re-rated it as a sell. Yet, a Kim Eng report (also with a sell rating) published last December 16 '03, shows an expected turnaround in earnings by year 2005. I think this earnings turnaround is now supported by the US news and is so starting to be reflected in its currently upward stock price. In general, I  note that several food stocks are showing good bottoming formations and refused to go to new lows -even as the SET sank deeper last week. Some think there is a consolidation in the food sector coming.

While all brokers I know, rated a sell on CFRESH when it dropped below 3 Baht per share. I think today few analysts cover this company anymore; all seem to have given-up. This is where I dare to step in.

CRESH climbed to over 3.40 by mid last week, so "Mr. Market" did like this news! Then, on Friday along with the sinking SET it gave up some of these gains, to close just below 3.3.
On this mini price correction,  I now rate CFRESH a speculative buy.  I think the worst is over and stocks often start moving-up, if things seem less bad than before. A bad company can be a very good investment -if the bad is getting less so!  Wonder what purist value investors say to that?

I do not think CFRESH is "a bad" company by any means,….years ago SSF told me CFRESH is the absolute best here, in what it does. It may well be that CFRESH is the best in what it does in the World!  A world class leader with now a softer currency -and not chicken related!  In the past US consumption of shrimp has shown very steady and non-cyclic upward growth rates.

You can see more at their attractive web site www.seafresh.com

Various products by CFRESH  (click away)

Looking at its stock graph, combined with the positive fundamental news out of the US last week, I think it could easily move back up to the 4.50-5.25 Baht level. There is a price gap around 2.90 to 3.10, but I doubt it will go back to this lower level in the short term? 

CFRESH cannot be called a "value stock", as it has no earnings at present and so pays no dividends. I will not include it in any model portfolio's but clearly mention it here as favorable
choice, all in my own view.

CFRESH has solid competition from Vietnam and other developing nations. There are other nature-related risks as any agri stock have. This is why they often trade at a discount p/e to the SET index.  It is not clear to me how much of their inventory has actually been written off? (Further, I do not know, how long one can keep frozen shrimp at deep freeze temperatures? If you happen to know this please make a comment at the bottom of this article. 

This company reported a small loss of 0.03 Baht per share for the latest quarterly period, ending March 31 '04. The 2 Q has not been released yet -I do not expect any real positive surprises. Stocks are most often future looking/anticipating -and this is what I think is happening to the stronger CFRESH stock level currently.

I believe the weaker Thai Baht versus the US Dollar recently, combined with the lowest import tax rate announced by the US last week, should support the restoration of this firms' profitability by next year.  Hence this current stock price level still has more upside potential, in my own opinion.

Best Regards,

Paul A. Renaud.

www.thaistocks.com

Last weeks new US import tax decision, on foreign imported shrimp into USA:

Source Interantional Trade Association (ITA) Announced on July 29 '04.