SEAPOWER Resources International (SRI) has a solid high quality earnings base and former stock exchange chief executive Francis Yuen is finally putting its huge cash-flow resources to high-growth use. There are signs that he is already succeeding, but the share price has yet to react. SRI, formed from a restructuring of Trafalgar Housing, currently controls 55 per cent of Hongkong's cold storage business. Operating costs of cold storage are low, and with steadily increasing demand for frozen food, and expanding food transshipment from China, the outlook is positive. This provides enormous and dependable cash flow. Mr Yuen has a three-fold strategy for channelling this into higher-growth areas: financial services, in which he has an excellent track record; foodstuffs, in order to exploit synergies with its storage business; and property development in a light industrial zone which can house its food processing operations. In the year to March, earnings will be virtually confined to the group's core business of cold storage. Morgan Grenfell Asia forecasts this will result in net profit of $89 million, a 41 per cent increase from last year. SRI has substantial cash resources, following the conversion of its 1992 warrants, but these led to significant earnings dilution, and on yesterday's closing price of $1.13, it is trading on a price-earnings multiple of 13. This is undemanding, given the quality of earnings. The March 1993 convertible preference shares have lapsed, and given their $1.18 conversion price, versus the March 31 share price of $1.15, no substantial take-up is expected. With no dilution in sight,the share price should start to perform more strongly. In the year to March 1993, the company will get a maiden full-year contribution from the group's financial services operations, which were bought in November and which have already performed strongly ahead of budget forecasts. The downside of the performance, is the fact that SRI will have to pay a $60 million premium for the acquisition, since it was bought on a PE of six times 1992-93 earnings; but the growth remains strong. Financial services should contribute $45 million to operating profit in the year to March 1994, helping lead to forecast earnings growth of 48 per cent, and putting the shares on a PE of 8.7. The group is also making a push into China, which will provide a lift to earnings in the following year. SRI has the franchise for Pizza Hut in Beijing, and by 1995 it is expected to have more than 30 outlets there. It already operates two profitable restaurants, and is pushing to generate economies of scale. In addition, it has the development rights for a two million square metre site in Kunshan, 50 kilometres from Shanghai. The site will be converted into a light industrial zone, with cold storage, food processing and other businesses, and a residential and commercial zone. Japanese trading giant Itochu, formerly C. Itoh, and Peregrine International are being brought in as partners. The stock hit a high of $1.63 last year, but has substantially under-performed the market in recent months. Francis Yuen has laid down the strategy for growth and investors should soon start to reap the rewards.