Thai Union Frozen Product

Thai Union Frozen Product Plc (TUF)

Q2 2012 profit decelerates as projected due to recognition of extraordinary expense

TUF’s 2Q12 net profit stands at B1bn or a decrease of 32% QoQ as expected,
which is a result of a deceleration of 2Q12 earnings since the company has
the recognition of financial expenses at B407m (net after tax) from debt
repayment before due date. However, the mentioned extraordinary item is
non-recurring accounting item, so it’s not something to be concerned. The
growth of 5% QoQ can still be seen in 2Q12 profit from operation due to the
following reasons. 1) The total sales have risen by 6% QoQ, benefiting from
high season of food business. Sales of sardine and mackerel (6% from the
total income) have grown by 22% QoQ while sales of shrimp products (22%
from the total income) have grown by 10% QoQ. For sales of pet food (7%
from the total income), they have grown by 9% while sales of tuna (50%
from the total income) have increased slightly by 0.2% QoQ due to
uncompromising climate in Europe, affecting the consumption of tuna to
decelerate slightly than projected but we’re convinced that it will grow
magnificently once again in 2H12. 2) The gross profit margin has slightly
slowed down to 16.9% (from 17.2% in 1Q12) due to the policy of minimum
wage increased to B300/day which is in the company’s capability to handle,
so it doesn’t affect TUF’s gross profit significantly. Overall, 1H12 net profit
stands at B2.47bn or 24% growth from the same period of last year,
considering 41% of FY2012 net profit forecast.

Maintain 2012-13 net profit forecast… 2H12 profit projected to grow from 1st half 2012

We maintain our 2012-13 net profit forecast. The overall business look of TUF
in 2H12 is projected to grow from 1H12 due to the following reasons. 1) The
benefits from high season of export will urge sales volume in every business
to increase in 2H12 especially canned tuna product that is projected to grow
notably due to receding competition in the US which will benefit the sales of
Chicken of the Sea (TUF’s subsidiary) and the climate in Europe that is
returning to normal, urging tendency of tuna consumption to increase in
2H12. 2) The financial expenses in 2H12 will decrease from 1H12 because of
the company’s debt repayment before due date with money from capital
raising at B9.5bn. Moreover, TUF’s stronger financial status opens to more
opportunities for international investment in countries with economic crisis
that we project to get the conclusion in 6-12 months ahead, still leading to a
significant revision of forecast and fair value of TUF once again.

Reiterate “BUY”… back to pay dividend yield at normal level in 1st half 2012

We still choose TUF as a top pick of the food sector. Although the current
share price has 2012 PER at 13.9x, it is projected to drop to 11.4x in 2013
which is lower than the regional average of the food sector at 16x. In
addition, TUF has announced 1H12 dividend yield at B1.1/share (return to
pay as normal with payout ratio not lower than 50%), considering 1.5%
dividend yield for half year, going XD on 20 August 2012 and due to pay
dividend on 31 August 2012.