Thai Union Frozen Products
A record tuna price in March BUY (maintained) Target Price: Bt82.00 Price (02/04/12): Bt74.25
Thai Union Frozen Products Plc (TUF)
What’s new? The average price of West Pacific Ocean (WPO) skipjack tuna stood at US$2,090/tonne in March, up by 8% MoM and 42% YoY. The mean price retreated 5% MoM in Feb to $1,930/tonne from $2,030/tonne in Jan. The 1Q12 average was $2,017/tonne (up 32% YoY). The 60 counts/kg shrimp price has declined to Bt125/kg since March 23, down 14% from the March 5-18 price. The 40 counts/kg price has dropped to Bt155/kg since March 21, down 9% from the March 3-18 mean.
Record March tuna price: The unprecedented WPO price for March supports our view that tuna prices will sustain an uptrend this year, driven by a lower tuna catch. Unfavorable weather conditions and tougher fishing regulations/enforcement will limit the catch—several Pacific Ocean fishing grounds will be closed for 1-3 months this year. We estimate a 2012 mean price of $2,200/tonne, up 25% YoY and a new record.
Sustained fat margin: Despite the raw tuna price uptrend, TUF sustained GM in the 16.7-17.4% range during 2Q-4Q11. GM is likely to remain around 17% in FY12 because of the firm’s ability to pass through higher raw tuna costs to customers. Buyers have only limited scope to bargain down prices in the prevailing tight tuna supply environment.
Increased shrimp supplies in March: The shrimp price slippage of 14% during the last couple of weeks suggests higher shrimp output following the Oct-Nov flooding. TUF may see a fatter shrimp margin in the short-term, as there is likely to be a time lag of several months before market conditions force it to cut its sales prices.
Action: The firm is our top pick in the sector for its solid FY12 core earnings growth profile, proven GM sustainability and scope for synergy-building with MWB and further business expansion. As such, there is considerable potential for upside to our current FY12 earnings forecast. Furthermore, management indicated that it plans to acquire another EU-based canned seafood company before YE12, which would almost invariably prompt an earnings forecast upgrade.
