Thai Union Frozen Product

Thai Union Frozen Product  Plc (TUF)

 

 - Capital increase for Bumble Bee acquisition 

 

TUF approved the issuance of 795.30 million new shares and distribute them to the existing shareholders on a pro rata basis to their respective holdings (preferential public offering: PPO) at the ratio of six existing shares to one new share at the price of B16.00; the purpose of the capital increase, as previously announced, is to acquire Bumble Bee. 

 

- Revise new shares assumption, waiting for rebound in 2016 

 

We revise up our full-year assumption on the number of newly-issued shares by 1.7%. Initially included 702.05 million newly-acquired shares in our forecast at the beginning of the acquisition of Bumble Bee, 795.30 million shares were actually issued (slightly higher than projected), thus increasing dilution effect by 1.7% from our forecast. Since TUF raises its capital by issuing new shares and borrowing, this reduces its interest expense by 4% from FY2016 earnings forecast, lowers its D/E ratio to 1.4x (in line with the target of 1x), and keep its dividend payment at the minimum of 50% of its profit. Although the capital increase would result in dilution effect on TUF's EPS in 2015, its EPS is expected to leap 65.8%yoy in 2016 since profit from Bumble Bee will be recognized for a full year. ? Food sector's top pick 

 

We recommend BUY. New FY2015 fair value (DCF, 7.34% WACC) is B25.56. Although P/E ratio is almost 19x in 2015, it would drop significantly to 11.4x in 2016 since its profit would jump strongly after the acquisition of Bumble Bee. In addition, TUF is one of the companies affected least by illegal fishery issue and higher feed mill raw material cost as a result of the drought.