Thai Union Frozen Products

Thai Union Frozen Products Plc (TUF)

What’s new? At about 2pm on Feb 11, a fire broke out near the packing section of a TUF shrimp processing plant in Samut Sakhon Province. The fire caused some damage before it was extinguished. The exact cause of the incident isn’t yet clear—according to management, in contrast to reports in some newspapers, there was no leakage of ammonia. As a result of the fire, 66 employees were taken to nearby hospitals for treatment, mostly related to smoke inhalation. There weren’t any serious injuries or deaths.
Analysis: We think the above news will impact TUF only negligibly, given that only its shrimp processing plant was affected by the fire. The other facilities at the compound—tuna, sardine and squid—remain operational. Any fire-related losses to plant, equipment and inventories and compensation for business interruption will be fully covered by insurance.
This shrimp processing plant generated sales of US$233m in FY11, about 7% of TUF’s consolidated sales, and employs around 2,100 workers. It was running at about 60% of its maximum capacity of 120 tonnes per day at the time of the fire, which is normal for low season. The firm will temporarily reassign some of its shrimp plant workers to other processing facilities in the compound and to nearby subsidiaries. It will also reallocate certain orders from the Samut Sakhon line to its shrimp processing facility in Songkhla Province in order to fill current outstanding orders.
Action: We think the impact of the fire on TUF’s overall business and financials will be negligible, given that the plant is fully covered by insurance. Our BUY rating stands with a YE12 target price of Bt85, pegged to a PER of 15x. The stock remains our top pick in the Food sector for its clear FY12 earnings visibility and scope for an FY12 profit forecast upgrade on synergy-building with MWB.