Thai Union Frozen Products

Thai Union Frozen Products Plc (TUF)

Thai Union Frozen Products Plc (TUF) Above estimate: TUF reported a Bt1.52bn net profit for 4Q11, up 333% YoY but down 2% QoQ. Core earnings, (ex-tax credit & FX items) rose 368% YoY but fell 27% QoQ. The reported net profit exceeded our estimate by 39%, thanks to the Bt366m tax credit booked in 4Q11 (we had modeled for a tax provision)—probably a tax shield from a wound-up MWB subsidiary. Core profit was 5% above our number, thanks to higher-than-modeled sales and lower-than-estimated SG&A. Pre-tax profit exceeded our estimate by 11% and sales by 3%.
Results highlights: Sales in US$ terms rose by 22% YoY and 1% QoQ, led by stronger sales of sardines (up 74% YoY), squid (up 77%), tuna (up 26%), shrimp (up 17%) and domestic sales (up 22%). Sales in baht terms increased by 26% YoY and 4% QoQ. GM was 16.7%, close to the 17.3% reported for 3Q11 but up strongly from 11.8% in 4Q10, due to sales price rises for both tuna and shrimp products, effective Feb-March 2011. Raw material prices increased—the cost of raw tuna by 59% YoY and 6% QoQ; shrimp (60 counts/kg) by 12% YoY and 8% QoQ.
Outlook: The firm targets annual sales growth of 15-20% for FY12-14 and a US$5bn FY15 sales target. To achieve the FY15 sales target, it will expand MWB’s markets in Eastern Europe, Russia and Scandinavia and launch new frozen seafood products (mainly shrimp and salmon) under the John West brand in Ireland and Petit Navire in France. Moreover, MWB will open a northern European sales office in Germany.
Sardines and pet food will be the rising stars in FY12. The firm will expand MWB sardine capacity by 30% in order to boost sales to South Africa, US and the EU. The pet food operation in the US will start-up in 2Q12. Synergistic benefits in FY12-13 of €15m per annum, are expected—€3m in operational efficiencies and €12m in product development. For the future, TUF acquisitions will not exceed $100m per deal. 
What’s changed? We have revised up our FY12 profit forecast by 5% to factor in greater sales expectations. Our PER-based YE12 target price rises 4% to Bt88.50. 
Recommendation: Our BUY rating stands.