Thai Union Frozen Product
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TUF+Bumble Bee to boost 2016 profit 66%yoy Rec. : BUY BUY
Thai Union Frozen Product Plc (TUF)
- Strong net profit rebound projected in 1Q15
We estimate TUF’s 1Q15 net profit at B1.1bn, growing 61.5%qoq and
18.7%yoy. Total sales are projected at B33bn, rising 2.1%qoq and 19.7%yoy, thanks to consolidation of its financial statement with MerAlliance and King Oscar (TUF holds 100% stake) for a full quarter (in 4Q14, earnings of the two subsidiaries were recognized only two months). Overall, consolidated net profit from the subsidiaries is estimated at B90m in 1Q15. In addition, a low tuna raw material price of US$1,200/ton on average in 4Q14, down as much as 23.9% from 3Q14, will fully benefit profitability of TUF’s tuna business in this quarter because its average product price is almost the same, making gross margin in 1Q15 increase to 15.0%. SG&A/sales would drop slightly from 10.3% in the previous quarter to 10.0% because some were fixed expenses that did not increase following sales.
- Bumble Bee to boost FY2016 profit by 66% yoy
We project TUF's net profit to jump by 16.7%yoy in 2015 and 65.8%yoy in 2016. In 2015, consolidated net profit from Bumble Bee will be recognized in 4Q15, B1.4bn one-time expense from the acquisition will be booked, and 702 million new shares (14.7% of its current total shares) will be issued for the acquisition. Therefore, FY2015 EPS growth is projected at only 1.9%yoy. However, TUF's earnings are expected to leap 65.8%yoy in 2016 after all negative factors have been booked in 2015. As a result of the capital increase for the Bumble Bee acquisition, TUF's interest bearing debt/equity is projected at 1.34x in 2015 and 1.29x in 2016, still in line with the company's policy of maintaining the ratio near 1x.
- Way undervalued. 2016 P/E ratio only 11x
We recommend buying TUF. As a global play, it will not be impacted by domestic economic slowdown. 2015 fair value (DCF, WACC of 7.34%) is B26.00; 2016 P/E ratio is anticipated at only 11x, lower than over 20x of international food stocks; more than 29% upside (dividend yield included) can be expected.
