Thai Union Frozen Product

Thai Union Frozen Product Plc (TUF)
Integrated strategy…value-added plus innovation
At the analyst meeting yesterday, CEOs of TUF’s overseas businesses, i.e.
MW Brands, Chicken of the Sea, Chicken of the Sea Frozen Foods, and US
Pet Nutrition, showed their visions about the business outlook in the next
three years with foreseen continuous and prosperous growth from 2013. A
key factor to boost the growth is new innovation that is different from that of
rivals, such as introduction of necessary-for-life products apart from valueadded
products to attract customers. At the same time, the aforementioned
subsidiaries would also use an advantage from TUF’s well-round seafood
business, from upstream to downstream, to seek lower cost of production
than peers. Moreover, each subsidiary also has its own business strategy e.g.
aggressive market expansion of MW Brands to serve customers in Europe,
the Middle East, and Africa, and aggressive marketing campaign of Chicken
of the Sea for its 100th anniversary through various forms of advertising to
highlight its leadership in the canned and frozen seafood business in the US.
- Reviving shrimp business and weak Baht to drive growth in 2014
We estimate FY2014 net profit of TUF at B5.8bn or remarkable growth of
59%yoy due to total sales that are projected to increase 18%yoy (higher
than the company’s target of 10%yoy). Aside from the above-mentioned
overseas business growth, TUF would also benefit from growing salmon and
instant food businesses and recovering shrimp and aquamarine feed mill
businesses in Thailand after the shrimp early mortality syndrome (EMS) got
better, resulting in increasing shrimp supply from Thailand in the market.
Moreover, gross margin in 2014 would increase to 15.4% from 13.3% in
2013, which is in line with the company’s goal to enhance profitability by
increasing future selling price of shrimp products and selling price of Brands
products to reflect rising raw material cost. At the same time, the company
would still focus on decreasing production cost after it has imported high
technology machines into its production lines and developing new products to
add value for the food business in the future. In addition, the company will
also benefit from the Baht that would depreciated by 5%yoy in 2014 as 90%
of its income is in foreign currencies (mainly US Dollar) and only 80% of its
cost is in foreign money, thus likely boosting total sales and net profit of TUF
in 2014.
- Reiterate BUY. 2014 fair value is B76
We reiterate to buy TUF. 2014 fair value is B76. FY2014 net profit is
projected to grow most notably among peers. The current share price has
18% upside. Dividend yield is estimated at 3.9% p.a. (paying semiannually).