Thai Union Frozen Product

Thai Union Frozen Product Plc (TUF)  

 

- Temporarily halt PPO 

TUF temporarily halted its capital raising via preferential public offering (PPO) at a ratio of six existing shares for one new share and an offer price of B16. The halt was announced after TUF’s subsidiary in the US, Tri-Union Seafoods, which operates a canned seafood business under a brand Chicken of the Sea, had been required by the U.S. Department of Justice (DOJ) to give information about its actions in regards to the competition law for investigation. However, the requirement is applied to the whole canned seafood industry in the US and has nothing to do with the anti-trust law which concerns Bumble Bee acquisition. Tri-Union said it had fully cooperated with the DOJ and the company and other subsidiaries in the US were not yet accused of any crime or breach of laws, but it still needed time to see it through whether the situation would affect Tri-Union business and the acquisition of Bumble Bee or not. 

- Revising forecast. Investigation may take long time 

We are in a process of revising 2015-2016 earnings forecast. The DOJ’s investigation may take a while because it concerns the U.S. canned seafood industry as a whole. Accordingly, Bumble Bee acquisition may be delayed or, in a worst case scenario, not happen. Our current forecast assumed that TUF could consolidate its financial statement with Bumble Bee since 4Q15, with all impacts from the capital increase and relevant expenses included in FY2015 forecast. Consequently, in the worst case that the acquisition does not happen, which means excluding Bumble Bee earnings from 4Q15 forecast, as well as an effect from the capital increase and extraordinary expenses, new 2015 net profit would be B6.6bn or a growth of 30.0%yoy, versus 16.7%yoy previously projected, and new EPS would be B1.39, growing at the same rate as the net profit; 2016 net profit would be B7.4bn, growing  only 11.6%yoy after Bumble Bee is excluded, versus a growth of 65.4%yoy to B9.8bn previously projected. 

- Downgrade to HOLD for dividend. New fair value is B22.75 

We downgrade our recommendation to holding TUF for dividend. New 2015 fair value after the forecast revision is B22.75 (DCF, WACC of 7.34%), versus B25.56 previously, implying only 10% upside from the current share price before XB of B20.7 (after excluding an impact from the capital raising).