Thai Union Frozen Product

Thai Union Frozen Product Plc (TUF)

2Q12 net profit expected to decelerate due to extraordinary expenses but norm profit still grows well.

We project TUF’s 2Q12 net profit to stand at B1.01bn or a decrease of 31.2%
QoQ which is less than our projection of B1.5bn as a result from the financial
expenses that the company has to recognize by B400m approximately (net
after tax) from debt repayment before due date. The mentioned
extraordinary item is non-recurring accounting item. However, the growth of
2Q12 profit from operation is still seen at 9% QoQ due to the following
reasons. 1) The total sales tends to increase by 8.1% QoQ due to the
benefits from high season of the food business although TUF has to face
problems from high competition in the US and cold climate in Europe that has
resulted in a slight deceleration of tuna consumption in this quarter.
Nevertheless, the company is still able to maintain the growth of total sale.
2) The total gross margin is projected to stabilize at 17% since the company
could fully increase the selling price along with the rising raw material cost
(tuna) and the negative effects from the labor cost that has increased due to
the government’s policy of minimum wage at B300/day that is in the
company’s capability to handle. For other items, we expect no significant
changes. Overall, net profit in 1H12 is projected to increase to B2.47bn or
24% growth from the same period of last year, considering 41% of FY2012
net profit forecast.
Capital base ready… D/E decreases to 0.7x, equal to one
before buying MWB
We maintain our forecast for TUF’s net profit in 2012-13. The operating result
in 2H12 tends to outgrow one in 1H12 while 3Q12’s overall business look will
be bright due to the high season of global food export. Moreover, after TUF
has received money from capital raising at B9.5bn, the company has spent it
to repay long-term loan which resulted in a decrease to 0.7x for 2Q12 D/E.
Accordingly, TUF is able to pay dividend payout at the normal level of 50% of
the net profit since 1H12 (earlier than we’d anticipated that this would begin
since 2H12) which will help increase 2012 dividend yield to 3.4% p.a. (from
previously projected 2.9% p.a.). In addition, TUF’s stronger financial status
opens to more opportunities for international investment in countries with
economic crisis that we project to get the conclusion soon.
Recommend “BUY”… share price has limited upside, but
ready to revise forecast
Although the current share price doesn’t have much upside from 2012 fair
value, we are likely to revise up the fair value again due to TUF’s expectation
to make acquisition as happened before in the past 2-3 years. We reiterate
our recommendation of “BUY”, expecting 1H12 dividend at B1.07/share or
1.4% dividend yield.