Thai Union Frozen Product
U$5bn revenue targeted in 2015 BUY
Thai Union Frozen Product Plc (TUF)
- 3Q14 profit makes new high as projected
TUF announced 3Q14 net profit at B1.9bn as projected, making a new high
by quarter with the growth of 26.3%qoq and 91.4%yoy, due to the
following contributions. 1) Gross margin increased to 17.2% in 3Q14,
beating projection and hitting a 12-quarter high, thanks to the tuna
business (47% of total revenue), which has benefited from a larger portion
of branded products and decreasing tuna raw material, and the shrimp
business (22% of total revenue), which still showed continuous growth from
better control of EMS disease in shrimps. 2) Financial expense decreased
significantly due to reversal of interest from convertible bonds. However,
the ratio of operating expense to total sales rose to 10.1%, higher than
projected, because of higher investments in overseas brands. Nevertheless,
as the positive factors have greater weight, strong net profit growth was
seen in 3Q14. 9M14 net profit leapt 115.6%yoy to B4.4bn, making up 84%
of FY2014 forecast.
- Next step: boosting 2015 revenue to US$5bn
TUF targets for total sales of US$5bn in FY2015 or continued growth of
more than 20%yoy from FY2014 target of nearly US$4bn, in line with our
forecast, due to both organic and inorganic growth. More M&A of overseas
seafood businesses will be seen in 2015 as small overseas entrepreneurs
that do not operate a well-round business will not be able to survive fierce
competition. At the same time, selling of capital assets will be seen in 2015
from maturation of overseas funds (after four-year investments). TUF has a
strong capital base; D/E ratio at end-2014 is estimated at only 0.71x, so it
is able to make additional debts for business expansion. All these are an
upside for TUF’s earnings and fair value in the future, which we have not yet
included in our forecast.
- Par split to B0.25, returning benefit to shareholders
We recommend buying TUF. 2015 fair value (DCF, WACC of 7.34%) is B91.
The company is considering reducing the par value from B1 to B0.25, which
will result in higher liquidity and make it more attractive for retail investors
