Thai Union Frozen Products

Thai Union Frozen Products Plc (TUF)

What’s new? Associated Press reported that three big tuna firms—Bumble Bee Foods, Tri-Union Seafoods (TUF's Chicken of the Seas brand) and Starkist—have settled a legal action brought against them by the counties of San Diego, Riverside and Marin (California) by paying US$3m in cash and donating $300,000 in tuna to food banks in California. The counties accused the three firms of under-filling tuna cans following a 2010 investigation by California’s Department of Food and Agriculture.
The payout was agreed with the district attorneys of the three counties ahead of the case going to court and will be split three ways. The settlement did not involve the three firms admitting guilt.
Negligible impact on TUF: We estimate that TUF will incur about US$1.1m (or Bt35m) in one-off expenses related to the settlement to be booked to its 3Q12 income statement. That would squeeze the firm’s 3Q12 bottom-line by 2% (and FY12 profit by 0.6%)—insignificant. 
Stable tuna price in July: The average price of West Pacific Ocean (WPO) skipjack tuna stood at US$2,240/tonne in July, up by 1.8% MoM, 38% YoY, and 10% since Jan and a new record. The 7M12 mean price was $2,126/tonne, up 28% YoY. The sustained high tuna price in July was expected, given the ongoing tightening of tuna supplies. We believe that the more stable tuna pricing environment in July will be positive for TUF’s 3Q12 GM and earnings. Its GM is secured by an enhanced ability to pass through higher tuna costs to customers. We continue to assume a mean tuna price of US$2,200/tonne for FY12, up 25% YoY.
Action: Our BUY rating stands, premised on GM sustainability, scope for synergy-building with MWB and value creation from new acquisitions in 2H12.