Thai Union Frozen Product

Thai Union Frozen Product Plc (TUF)

- 3Q13 net profit to rise 139%qoq. Shrimp business rebounds.
No Fx loss
3Q13 net profit is projected at B859m, rising 139%qoq but falling 47%yoy,
due to the following: 1) Total sales are projected to grow by only 3%,
whereas they usually grow by 5-10%qoq in 3Q, which is peak season of a
year. Sales in shrimp business (19% of total income) is likely to improve
due to higher sales volume as TUF imported some shrimps for the factory in
Thailand, compensating for shrimps killed by disease (EMS). However, tuna
sales (50% of total income) is projected to contract gradually, as OEM
customers delayed purchase order to keep tuna stock low due to their
concern about decrease in global tuna price. 2) Gross margin is projected to
grow from 12.4% in 2Q13 to 13%. Shrimp product average sale price has
been increased due to rising raw material cost, so 3Q13 gross margin for
shrimp business would be higher than 2Q13. 3) Fx profit is projected at
B50m, rebounding from B237m Fx loss in 2Q13. End-3Q13 THB was at
B31.24/USD, which was close to 2Q13. Thus, TUF could handle risk of Fx
loss efficiently. There is no implicit change in other items. Overall, 9M13 net
profit is projected at B1.9bn, dropping severely by 54%yoy, making up only
50% of FY2013 earnings forecast.
- To revise down FY2013-2014 earnings forecast. Shrimp and tuna businesses recovery more sluggish than expected
We will revise down FY2013-2014 net profit forecast after TUF announces
3Q13 earnings result as shrimp and tuna businesses recovered more
sluggishly than expected. In the remainder of 2013 and in 2014, TUF would
still be at risk due to many pressing factors, mainly disease that has
seriously damaged shrimp production in Thailand. Though many
organizations have been participating in disease prevention, it takes time to
see the result and regain confidence to resume shrimp farming. As raw tuna
price has been fluctuating, OEM customers have to delay purchase order,
pressing sales and gross profit margin in tuna business.
- "HOLD". Price already undergoes correction but no short-term positive factor
We project fair value at end-2013 (DCF, 7.34% WACC) at B62. We believe
that share price has undergone correction, reflecting pressure from FY2013
earnings result. However, as long as shrimp disease still exists, it would still
press FY2013 earnings result. Thus, we reiterate "HOLD" to receive
dividend.