Thai Union Frozen Products

What’s new? 

On Sept 15, TUF announced that it will acquire 100% of a Norwegian seafood brand called King Oscar AS from the private equity firm Procuritas Capital. King Oscar was the firm’s second acquisition deal within a month, following its recent purchase of MerAlliance on Sept 4. The transaction is expected to be closed in 4Q14. TUF didn’t disclose the purchase price. 

King Oscar’s 2013 sales were about US$80m (Bt2.7bn) and its 2013 EBITDA margin was 12%. The Bergen-headquartered firm posted a sales CAGR of 6% for the past five years.  

King Oscar is a fish cannery with production facilities in Poland and Norway. Its product range is dominated by sardines, but also includes herring, mackerel, tuna and anchovies. King Oscar is the leading premium sardine brand in Norway, the US and Australia (and a significant player in Poland and Belgium) and the firm has a market presence in 16 countries. 

The premium “King Oscar” branding advantage    

Assuming a purchase price PER peg in the range of 6-7x, annual sales growth of 6% in 2014, a net margin of 6% (a US$5.1m net profit in 2014), we estimate that the purchase price of this deal would be in the Bt1.0-1.2bn range. We assume that the acquisition would be funded entirely by debt. TUF will gain from building the premium “King Oscar” brand in the global market and will strengthen its presence in Scandinavia and elsewhere. 

FY15-16 earnings forecasts revised up by 3%

For King Oscar, we assume FY15 sales of US$90m (annual sales growth of 6%), an EBITDA margin of 12% and a net margin of 6%. We also assume that King Oscar’s EBITDA margin and net margin are fatter than our FY15 forecasts for TUF’s consolidated EBITDA margin (7.3%) and net margin (4.5%). 

Based on the assumptions above, we have revised up our FY15-16 top-line forecasts by 2.1% to Bt143bn for FY15 and by 2.1% to Bt153bn for FY16. Our FY15-16 net profit forecasts rise by 2.9% for both years to Bt6.48bn and Bt6.87bn respectively. As such, our YE15 target price inches up 3% to Bt88.50. We have a BUY rating, premised on an FY14 earnings recovery, led by stronger Thai shrimp operations, sustained high branded tuna and fatter OEM tuna margins and a turnaround at USPN.