Thai Union Frozen Product

Thai Union Frozen Product  Plc (TUF)

Confirmed: Worst is over for shrimp — At its analyst meeting, TUF management confirmed our belief that the worst is over for the shrimp business, allowing it to gradually get back on the road. This was already seen in 3Q13 earnings, with shrimp sales volume increasing to 16,695 tons, growth of 6% YoY and 0.4% QoQ. The setup of a new subsidiary, TMAC Co., Ltd. (TMAC), to handle the shrimp business will help improve sales and margins of this business in 4Q13 and 2014. Widening margin will be higher production, reduction in costs and improvements in operational efficiency, coupled with the ability to pass higher costs onto customers in new contracts.
Adds JV to expand supply chain. TMAC was incorporated in December 2012 through a joint venture partnership between Thai Union Feedmill Co., Ltd (TFM), a subsidiary of TUF, and Mitsubishi Corporation (MC) to aid in the expansion and improvement in supply chain management for TUF’s shrimp business. Under TMAC’s umbrella are Thai Union Hatchery Co., Ltd (TUH), a shrimp breeding and hatchery farm, and TMK Farm (TMK) and TCM Fishery (TCM), both shrimp farms. TUF expects TMAC to help lift shrimp supply and slim shrimp feed cost via an in-house shrimp breeding and hatchery unit.
EMS is here to stay. Management said there is no real cure to Early Mortality Syndrome (EMS) yet, with the cure still being debated in the scientific community. Rather than finding a cure, the company is instead focusing on improving prevention methods and finding tactics to reduce mortality rates. This is working, with TMK2 farm seeing a reduction in mortality rates to 30-40% from 50-60% earlier this year. The company targets TMK2 farm production of 170 tons in 2013 (100 tons YTD) and 490 tons in 2014. The jump in 2014 is because TMK2 Farm is not yet operating at full capacity in 2013.
Shrimp business better in 2014. TUF expects 2013 to be shrimp’s worst year as it battled the EMS epidemic. However, moving ahead, three factors are expected to lead to improvement in this business: 1) Thailand’s shrimp species are at their historical best ever; 2) shrimp farmers are better educated on EMS and how to prevent the disease; and 3) more sharing of knowledge between countries will help provide more data on the disease and eventually lead to a cure. Backed by these factors, TUF estimates Thai shrimp production at 250,000 tons in 2013 from 550,000 in 2012, with gradual improvement to 300,000 tons in 2014, 400,000 tons in 2015, and 500,000 tons in 2016.