Thai Union Frozen Products

Thai Union Frozen Products Plc (TUF)
 

Above estimate: TUF reported a Bt1.47bn net profit for 1Q12, up 93% YoY but down 3% QoQ. Stripping out an FX gain and a 4Q11 deferred tax credit, core earnings rose by 63% YoY and 19% QoQ. The bottom-line exceeded our estimate by 22%, led by a higher-than-modeled FX gain and a stronger core operation. Core profit was 12% above our model, due to higher gross profit and lower minority interests than assumed.
Results highlights: The YoY rise was attributable to a full quarter of sales price increases in 1Q12 (compared with only one month for 1Q11). Sales in US dollar terms rose 11% YoY—sardines sales jumped 45% YoY, domestic sales by 36%, squid by 20%, shrimp by 8% and tuna by 5%. Sales in baht terms expanded 11% YoY. GM was 17.2%, up from 14.8% in 1Q11. Raw material prices increased—the cost of raw tuna by 32% YoY; shrimp (60 counts/kg) by 4% YoY. 
Outlook: Management maintains FY12 sales growth guidance of 15%—from US$3.2bn to $3.7bn—and FY12 GM of 17% (with a long-term target of 20%). TUF believes that it will be able to continue passing through higher raw material costs to its customers, due to its diverse client base. Buyers appear to have come to accept a raw tuna price of above US$2,000/tonne. Due to the upcoming high season, the firm expects tuna sales volume to increase during 2Q-3Q12. Shrimp sales and volume will also seasonally peak in 2Q-3Q12, while sardine sales will rise in 2Q-2H12 on export expansion to Africa, Japan, Laos and Cambodia.
The pet food operation in the US, which started up in 2Q12, will be the key 2H12-13 earnings driver with targeted sales of US$30m in FY12 and $55m next year and GM of 20%. TUF will also announce at one new acquisition in the range of $100-200m later this year, probably a branded food company in a developed market. The firm is also looking at an Asian seafood operator.
What’s changed? We have raised our FY12-13 profit forecasts by 3-4% to factor in fatter GM. Our PER-pegged YE12 target price rises 4% to Bt85. 
Recommendation: We rate TUF a BUY.