Thai Union Frozen Products

What’s new? 

On Sept 4, a TUF subsidiary, MW Brands SAS, announced that it will acquire 100% of Meralliance SAS (MerAlliance), a leading European smoked-salmon producer. MerAlliance, a French-based company, is the fourth-largest smoked salmon player in the EU—No.1 in the private label smoked salmon market in France and the Netherlands; No. 4 in the same category in the UK. MerAlliance has a 20% market share of smoked salmon in France. It has a strong brand presence in France and the UK. The firm has production facilities in France, Scotland and Poland. 

TUF didn’t disclose the purchase price because it didn’t exceed 2% of its net total asset value (the threshold for mandatory reporting under current SET disclosure rules). MerAlliance’s annual sales (ending March 31, 2014) were about US$220m (Bt7.4bn). The transaction is expected to be closed in 4Q14. Note that TUF acquired MW Brands in 4Q10 for €680m. MW Brands is the European leader in canned tuna—the leading player in France, the UK, Ireland and the Netherlands and No. 2 in Italy. MW Brands has very strong brands—Petit Navire, Parmentier, John West and Mareblu. 

Benefits of the deal   

Assuming a PER range of 6-7x and an US$8.8m net profit for FY15 (net margin of 4%), we estimate the purchase price of this deal to be in the Bt1.8-2.0bn range. We expect it to be funded entirely by operational cash flows. 

The EU salmon market is highly competitive, but MerAlliance is already a major player. We believe that this deal will benefit TUF by giving it market entry to a new product category—chilled fish—and a new brand. There might also be scope for synergistic benefits through joint sourcing, co-packing and shared logistics.

FY15-16 earnings forecasts upgraded 5%

With regard to MerAlliance, we assume FY15 sales of Bt7.3bn and FY16 sales of Bt7.6bn, GM of 11% (close to TUF’s GM of 11.8% for its OEM salmon business in 1H14) and a NM of 4% (close to the estimated consolidated net margin of 4.4% in FY14). So the acquisition prompted us to upgrade our top-line forecasts by 5.5% to Bt140bn for FY15 and by 5.4% to Bt150bn for FY16. As such, our TUF net profit projections increase by 5% to Bt6.31bn and by 4.9% to Bt6.69bn, respectively. Our YE15 target price also rises 5% to Bt86. 

We have a BUY rating, premised on an FY14 earnings recovery, led by stronger Thai shrimp operations, sustained high branded and OEM tuna margins and a turnaround at USPN.