Thai Union Frozen Product

Overseas acquisition opportunity returns BUY

Thai Union Frozen Product Plc (TUF)

Acquiring Europe's leading salmon business

TUF has approved to acquire 100% shareholding in Meralliance SAS in

France, which is one of the five largest smoked salmon producers in Europe

with the market share of 20%. Meralliance's production facilities are located

in France, Scotland, and Poland, near raw material sources and highly

accessible to customers. The acquisition deal is expected to be complete

within 4Q14.

- Synergy expected after 2015

We have only slight positive outlook toward Meralliance acquisition since its

benefit will be insignificant to TUF’s profit forecasts in 2014-2016 and the

value of the deal is not high or only 2% of total assets. Moreover, the

acquisition will have no effect on TUF’s financial liquidity since the source of

capital invested will be internal financing and cash in hand at end-2Q14 is

B8.4bn or 7.6% of total assets. Although the company has still not disclosed

much details on financial data of Meralliance, only total sales of US$220m in

2013 were informed, we estimate the average revenue growth at 10%p.a.

and net profit margin of 2.5%, lower than TUF’s average since Meralliance is

an original design manufacturer (ODM). Accordingly, net profit in 2015-

2016 would grow by B200m or an increase of 3% from our forecast.

However, after the acquisition is complete, a significant synergy is foreseen

for Meralliance for its cooperation with MWB in developing a business and

economies of scale regarding raw material and packaging provision.

- Opportunity for more M&A deals

We reiterate BUY for TUF. FY2014 fair value is B76 (DCF, 7.34% WACC). We

will switch to use FY2015 fair value of B86 (implying 22% upside) after

3Q14 earnings report. Dividend yield is expected at 3.2%p.a. (paid

semiannually).