Thai Union Frozen Products

 

We project TUF’s 2Q12 net profit to stand at B1.01bn or a decrease of 31.2% QoQ which is less than our projection of B1.5bn as a result from the financial expenses that the company has to recognize by B400m approximately (net after tax) from debt repayment before due date. The mentioned extraordinary item is non-recurring accounting item. However, the growth of 2Q12 profit from operation is still seen at 9% QoQ  due to the following reasons. 1) The total sales tends to increase by 8.1% QoQ due to the benefits from high season of the food business although TUF has to face problems from high competition in the US and cold climate in Europe that has resulted in a slight deceleration of tuna consumption in this quarter. Nevertheless, the company is still able to maintain the growth of total sale. 2) The total gross margin is projected to stabilize at 17% since the company could fully increase the selling price along with the rising raw material cost 

(tuna) and the negative effects from the labor cost that has increased due to the government’s policy of minimum wage at B300/day that is in the company’s capability to handle. For other items, we expect no significant changes. Overall, net profit in 1H12 is projected to increase to B2.47bn or 24% growth from the same period of last year, considering 41% of FY2012 net profit forecast.

Capital base ready… D/E decreases to 0.7x, equal to one before buying MWB   We maintain our forecast for TUF’s net profit in 2012-13. The operating result in 2H12 tends to outgrow one in 1H12 while 3Q12’s overall business look will be bright due to the high season of global food export. Moreover, after TUF has received money from capital raising at B9.5bn, the company has spent it to repay long-term loan which resulted in a decrease to 0.7x for 2Q12 D/E. 

Accordingly, TUF is able to pay dividend payout at the normal level of 50% of the net profit since 1H12 (earlier than we’d anticipated that this would begin since 2H12) which will help increase 2012 dividend yield to 3.4% p.a. (from previously projected 2.9% p.a.). In addition, TUF’s stronger financial status opens to more opportunities for international investment in countries with economic crisis that we project to get the conclusion soon. 

- Recommend “BUY”… share price has limited upside, but ready to revise forecast   

Although the current share price doesn’t have much  upside from 2012 fair value, we are likely to revise up the fair value again due to TUF’s expectation to make acquisition as happened before in the past 2-3 years. We reiterate our recommendation of “BUY”, expecting 1H12 dividend at B1.07/share or 1.4% dividend yield.