Thai Union Frozen Product

What’s new? TUF acquired 100% in King Oscar AS, Norway from The Private Equity Fund Procuritas Capital Investor IV. A canned fish producer, King Oscar is one of the top ten seafood brands globally, on supermarket shelves in 16 countries worldwide. King Oscar has strong branded market positions in Norway, the US, Poland, Belgium and Australia with a leading position in the premium sardine segment and strong growth opportunities in the mackerel and tuna segments. It is well-established in the US, adding greater heft to TUF’s presence in the US. Two King Oscar plants are located in Norway and Poland with access to catches from the North and Baltic seas. King Oscar is also #1 in the premium sardine category in Norway, the US, and Australia. Total sales in FY2013 were US$80mn or Bt2.6bn, equivalent to 2% of TUF group revenue.  

Acquisition to lift sales to approach target of US$5bn in 2015. The purchase of King Oscar will help TUF reach its 2015 sales target of US$5bn from its target of US$4bn in 2014. Adding to its sales in 2015 will be ~US$220mn from MerAlliance, accounting for 5-6% of total sales, and US$80mn from King Oscar, 2% of total sales. We expect these two recent acquisitions to expand the group’s gross margin as both output premium products. We also believe both offer good synergy with TUF group. We suspect TUF has more such purchases up its sleeve of a similar size and believe this latest purchase will put paid to any speculation that it is interested in Bumble Bee.

TP Bt80; maintain BUY. We believe earnings will be better in 2H14 with a continued good tuna margin and better gross margin on shrimp as its recovery gets on more solid footing. Its pet food business in the US will reach breakeven after losses YoY and QoQ. After we have more details about the MerAlliance and King Oscar businesses, we will be adjusting our forecasts from 2015 onwards but our current 2015 forecast is still based on total sales of US$4.5bn or Bt140bn, though we expect factoring in these two businesses will lead 2015 sales forecast to approach US$5bn. We roughly estimate a rise of Bt2-5/share in the fair value of TUF after these two deals are completed. We maintain BUY with a TP of Bt80, based on 2x mid-2015 P/BV.