Thai Union Frozen Product

Thai Union Frozen Product Plc (TUF)

 4Q13F growing to Bt31.5bn. Thanks in part to baht depreciation, we expect sales to reach ~Bt31.5bn, +20%YoY, +7%QoQ. Earnings, however, will fall 20% from 3Q13 to Bt806mn on several extra items: 1) FX loss of Bt100mn; 2) loss from write-off of subsidiary USPN of ~US$30mn, 3) a partial offset of Bt80mn from extra income. Good inventory and raw material management kept TUF from having to book a stock loss despite the 15% QoQ fall in tuna price in 4Q13. Its shrimp business is expected to provide lower earnings QoQ as fourth quarter is generally the low season.
2014 to be a good year. This should be a good year for TUF, who will be blessed with three positive factors: 1) baht depreciation, 2) lower tuna prices that should lift demand, and 3) continued recovery of Thailand’s shrimp business. TUF has set a sales target of US$4bn for 2014, +10%YoY in US$ terms and +17% in baht terms. We expect the company to have no trouble achieving target in the climate of a depreciating baht and lower tuna prices – now at US$1,275 per ton, a fall of 38% YoY. TUF feels that the lower tuna prices will encourage customers to launch promotional campaigns to increase sales volume, leading to higher orders from TUF. TUF also expects a significant turnaround in its shrimp business QoQ.
Raise 2014F and TP to Bt75; maintain BUY. The environment for TUF is good, with lower tuna prices and a turnaround in shrimp. This has led us to raise our sales estimate to US$4.0bn (Bt129bn) from US$3.8bn. At an exchange rate of Bt32.50/USD, by our estimates net profit will surge 90% YoY to Bt5.4bn, giving an EPS of Bt4.7. Of peers, TUF is best positioned when the baht weakens, with an estimated 4.7% increase in net profit for each depreciation of Bt1 to the dollar. We maintain BUY and raise target price to Bt75 from Bt70 on an unchanged 2014 PER of 16x.