Agribusiness Sector AGRI-FOOD

Agri-business Sector (AGRI-FOOD)

US downgraded Thailand to Tier 3 (lowest ranking) on the
Trafficking in Persons (TIP) report. This would affect the sector's
labor cost in the future. TUF and CPF might be pressed for a short
term.

- US downgrades Thailand to Tier 3 on human trafficking report
The Department of State has blacklisted Thailand in the 2014 US State
Department report on trafficking. Thailand was downgraded to Tier 3
(lowest ranking), same as Syria, North Korea, Zimbabwe and the Central
African Republic.
- Negative factor to raise labor cost
Thailand had previously stayed on the Tier 2 (Watch List) for two
consecutive years on the Trafficking in Persons (TIP) report. No significant
progress had been made on anti-trafficking in Thailand in the recent year;
there was a political turmoil, and a new rightful government was not
obtained. We have been monitoring U.S. movement after the downgrade.
Initially, we anticipate that the downgrade would have a limited effect on
TUF and CPF. They have overseas production base, and their seafood
exports to US make up only 13.4% and 1% of their total sales volume,
respectively. Also, thanks to their world-standard products and good
relationship with customers, TUF and CPF's orders from existing customer
base are not likely to decline. However, it would be harder for them to
expand their new customer base and promote their business growth. We
expect TUF and CPF's labor cost to increase; labor cost currently makes up
8% and 12% of TUF and CPF's total cost of selling, respectively.
- TUF, CPF share prices to drop for short term
We maintain agribusiness-food sector's net profit forecast. The blacklist
would have a short-term psychological effect on CPF and TUF. For
TUF(FV@B76), we recommend buying when price weakens. For
CPF(FV@B28), we reiterate HOLD