Thai Union Frozen Products

Thai Union Frozen Products Plc (TUF)

Slightly above estimate: TUF reported a Bt1bn net profit for 2Q12, down by 22% YoY and 32% QoQ. Stripping out Bt407m in one-off financing expenses and FX, core profit would be Bt1.39bn, up by 16% YoY and 12% QoQ. There was a Bt621m non-cash accounting expense related to a €250m loan prepayment (financed by the proceeds of the May 2012 RO). As the item was 34% tax deductible under French law, the net impact was Bt407m. The posted profit was 5% above our estimate, due to lower SG&A, interest and tax expenses than expected. Sales and GM were as modeled.
Results highlights: The solid YoY core profit rise was led by sales, sustained GM and good OPEX control (despite the minimum wage increase). The SG&A/sales ratio was 9.1%, down from 9.4% in 1Q12 (it was 8.8% in 2Q11). TUF announced a Bt1.1 DPS for 1H12 operations, a 51% payout ratio.  
Sales in baht terms rose by 8% YoY and 6% QoQ (up 4% YoY and QoQ in US$ terms), despite intense price-led competition in the US for Chicken of the Sea International (COSI), marginal sales growth for MWB, (due to rainy weather) and lower shrimp sales (because of a fire at a shrimp processing plant in Feb). GM was 16.9%, down slightly from 17.2% in 1Q12. The cost of raw tuna rose 22% YoY while the price of shrimp dropped 17% YoY. 
Outlook: We expect GM to expand above 17% in 2H12, underpinned by: 1) export high season, 2) higher shrimp sales, enabled by a rising run rate at a new plant, and 3) improved COSI margin with gradual sales price increases (following sales price rises by the leading US player, Starkist). A Bt600m/annum interest cost saving will boost the 2H12 bottom-line, while rising pet food sales in the US will augment GM in FY13. We estimate a Bt1.6-1.7bn net profit for 3Q12, up by 2-9% YoY and 38-45% QoQ. Management maintains FY12 sales growth guidance of 15%.
What’s changed? We have cut our FY12 net profit forecast by 7% to factor in the 2Q12 one-off financing charge, but maintain our FY12 core profit forecast unchanged. YE12 target price is unchanged at Bt85. 
Recommendation: Our BUY rating stands.