Thai Union Frozen Product

Thai Union Frozen Product Plc (TUF)

- 4Q13 net profit below expectation
TUF's 4Q13 net profit was B815m, dropping 18.8%qoq but growing
33.1%yoy (lower than expected) as a result of extraordinary expenses:
B206m from subsidiary USPN's restructure and B143m from inventory writeoffs
from subsidiary MWB. 4Q13 normalized profit stayed close to 3Q13 at
B1.46bn (lower than expected). Shrimp and shrimp feed prices (25% of total
income) increased to reflect rising raw material cost and sales of overseas
product compensating for small supply of shrimp product in Thailand (due to
EMS), and shrimp-processing factory was improved to reduce production
cost. Thus, gross profit rose by 5.9%qoq. However, SG&A increased by
10.5%qoq, totally negating the benefit from gross profit margin. Overall,
FY2013 net profit shrank drastically by 39.2%yoy to B2.85bn.
- Revise down earnings forecast, but FY2014 net profit to leap over two folds
We revise down TUF's FY2014-2015 net profit forecast by 14.2% and 9.9%,
respectively, mainly cutting projections on sales volume and gross profit
margin, as tuna and shrimp businesses are not likely to recover as
significantly as expected. Still, after the down revision, FY2014-2015 net
profit is projected to grow by 83%yoy and 18%yoy, respectively, owing to
the following factors: 1) After the business restructure (focusing on
improving profitability), profit from pet food business in US is expected to
rebound from B1bn net loss in 2013. 2) As EMS has subsided, overall shrimp
and feed business are projected to improve significantly from 2013, and
more shrimp products would be sold in the market in 2H14, thus reducing
raw material cost. 3) Tuna business is likely to recover significantly, as
material cost has reduced, and made the three-year lowest. Thus, 2014
worldwide tuna consumption is expected to grow. 4) THB depreciation would
boost TUF's sales volume and gross profit margin, as TUF is Thailand's major
food exporter.
- 2H13 dividend yield averagely 1.3%
We recommend buying. We revise down TUF's FY2014 fair value from B79.5
to B76 (DCF, 7.34% WACC), implying 13% upside. TUF's 2H13 dividend is
B0.89/share (1.3% dividend yield). XD date is 6 March 2014 and dividend
will be paid on 18 April 2014.