Thai Union Frozen Products

Thai Union Frozen Products Plc (TUF)
Riding the road to recovery
Event
- With the cause of the shrimp disease identified, we expect shrimp farmers to raise shrimp production, and with tuna prices stabilising as well, we believe TUF’s business operations should recover in 2H13. We maintain our positive outlook for the company and our Outperform rating on the stock with a Bt75 target price.
Impact
- Tuna business – more stable tuna price encourages more orders. Tuna prices stabilised at Bt1,800-1,920/tonne over the period July-September 2013. Stable tuna prices should enable TUF to price its canned tuna profitably and encourage buyers to place orders. Also, the easing of competition in the US branded canned-tuna market has supported TUF’s tuna business profitability.
- Shrimp business – progress on EMS. With the cause of the shrimp disease Early Mortality Syndrome (EMS) identified and a remedial treatment now more widely practiced, we expect Thai shrimp farmers should gradually increase production. TUF can pass on most of the higher raw-material cost to customers. Therefore, we expect TUF’s shrimp business to recover in 3Q13, from the weak 1H13.
- Other businesses – new line picking up momentum. TUF plans to improve its operation in its pet-food business. It indicated that its pet-food business is poised for a turnaround – from a loss of Bt200m in 2012 to almost breakeven level in 2013 – as it improves production efficiency and utilization.
Earnings and target price revision
- No change.
Price catalyst
12-month price target: Bt75.00 based on a EV/EBITDA methodology.
- Catalyst: Stable tuna price, recovering shrimp survival rate, improving learning curve of the US pet food business
Action and recommendation
- With a more stable tuna price outlook and shrimp production recovering, we believe the operational improvement should be a key catalyst over the coming quarters. We maintain our Outperform rating with an unchanged EV/EBITDA-based target price of Bt75.