Thai Union Frozen Product

Thai Union Frozen Product Plc (TUF)  

 

- Working on businesses' integration 

TUF aims to achieve its sales target of US$5bn within 2015, focusing on improving businesses' integration of the three major M&A deals, e.g. King Oscar, MerAlliance, and Orion (Chicken of the Sea's subsidiary, acquired in February 2015), for more harmonious management in line with its plan. Consolidated net profit from Bumble Bee will be recognized from 4Q15 on. TUF has been aware of volatile exchange rates, so it has an executive team to carefully monitor exchange rates. The EU's yellow card over Thai fishery has no actual effect on TUF's earnings; it is just a warning, urging the government to take illegal fishery and labor problems seriously. 

- Bumble Bee to boost FY2016 profit by 66%yoy 

We maintain FY2015-2016 earnings forecast, estimating TUF's net profit to grow by 16.7%yoy in 2015 and leap by 65.8%yoy in 2016. In 2015, consolidated net profit from Bumble Bee will be recognized in 4Q15, B1.4bn one-time expense from the Bumble Bee acquisition will be booked, and 702 million new shares (14.7% of its current total shares) will be issued for the acquisition. Therefore, FY2015 EPS growth is projected at only 1.9%yoy. However, TUF's earnings are expected to leap 65.8%yoy in 2016 after all negative factors have been booked in 2015. After the capital increase for the Bumble Bee acquisition, TUF's interest bearing debt/equity is projected at 1.34x in 2015 and 1.29x in 2016, still in line with the company's policy of maintaining the ratio near 1x; this is not worrying. 

- Much less expensive than international food stocks 

FY2015 fair value (DCF, 7.34% WACC) is B26.00. TUF's P/E ratio of 12x is lower than most international food stocks with over 20x FY2016 P/E ratio. Also, TUF's earnings is likely to enter an uptrend from now on.