Thai Union Frozen Product

Thursday, April 9, 2015
Company Visit/ 1Q15 Earnings Preview
Thai Union Frozen Product
TUF
Rec. : BUY
TUF+Bumble Bee to boost 2016 profit 66%yoy
TUF is substantially undervalued when compared with its business outlook for 2016.
After fully including earnings of Bumble Bee, TUF’s total sales would achieve a target of
US$5bn, net profit base would get near US$10bn, P/E ratio would decrease to 11x,
and dividend yield can be expected above 4%p.a.
 Strong net profit rebound projected in 1Q15
We estimate TUF’s 1Q15 net profit at B1.1bn, growing 61.5%qoq and
18.7%yoy. Total sales are projected at B33bn, rising 2.1%qoq and
19.7%yoy, thanks to consolidation of its financial statement with MerAlliance
and King Oscar (TUF holds 100% stake) for a full quarter (in 4Q14, earnings
of the two subsidiaries were recognized only two months). Overall,
consolidated net profit from the subsidiaries is estimated at B90m in 1Q15. In
addition, a low tuna raw material price of US$1,200/ton on average in 4Q14,
down as much as 23.9% from 3Q14, will fully benefit profitability of TUF’s
tuna business in this quarter because its average product price is almost the
same, making gross margin in 1Q15 increase to 15.0%. SG&A/sales would
drop slightly from 10.3% in the previous quarter to 10.0% because some
were fixed expenses that did not increase following sales.
 Bumble Bee to boost FY2016 profit by 66%yoy
Current Price (B): 20.50
Target Price 2015 (B): 26.00
Upside : 26.8%
Dividend Yield : 2.6%
Total Return : 29.4%
Market Cap. (Bm) : 97,822
CG Score:
Technical Chart
We project TUF's net profit to jump by 16.7%yoy in 2015 and 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 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. As a result of 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.
 Way undervalued. 2016 P/E ratio only 11x
We recommend buying TUF. As a global play, it will not be impacted by
domestic economic slowdown. 2015 fair value (DCF, WACC of 7.34%) is
B26.00; 2016 P/E ratio is anticipated at only 11x, lower than over 20x of
international food stocks; more than 29% upside (dividend yield included)
can be expected.
ASP vs IAA consensus
ASP
2015F
1.09
2016F
1.80
EPS (B)
Cons
1.40
1.64
% diff
-22%
10%
Source: IAA consensus and ASP
Key Data
FY: Dec 31
Net Profit (Bm)
Norm Profit (Bm)
EPS (B)
PER (x)
Dividend Yield (%)
ROE (%)
BVS (B)
PBV (x)
EV/EBITDA (x)
FY13A
2,853
2,853
0.62
33.0
1.8%
7.3%
8.61
2.4
18.7
FY14A
5,092
5,092
1.07
19.2
2.7%
11.6%
9.15
2.2
13.8
FY15F
5,944
7,344
1.09
18.9
2.6%
13.7%
11.36
1.8
16.4
FY16F
9,854
9,854
1.80
11.4
4.4%
15.1%
12.26
1.7
10.4
FY17F
10,083
10,083
1.84
11.1
4.5%
14.9%
13.18
1.6
9.8
Usanee Liurut
License No.: 017928
usanee@asiaplus.co.th
Anakepong Putthatibal
Analyst Assistant
Source : ASP Research
This report is a rough translation of one of our Thai-language research products. It is produced primarily with time efficiency in mind, so that English-reading clients can see what the main recommendations are from our Thai-language research
team. Given that this is a rough-and-ready translation, Asia Plus Securities pcl cannot be held responsible for translation inaccuracies.) The reports and information contained herein are compiled from public data sources and our analysts'
interviews with executives of listed companies. They are presented for informational purposes only and not to be deemed as solicitations to buy or sell any securities. Best attempts have been made to verify information from these vast sources, but
we cannot guarantee their accuracy, adequacy, completeness and timeliness. The analyses and comments presented herein are opinions of our analysts and do not necessarily reflect the views of Asia Plus Securities.
 Strong net profit rebound projected in 1Q15. Two M&A deals
fully recognized
We estimate TUF’s 1Q15 net profit at B1.1bn, growing 61.5%qoq and
18.7%yoy. Total sales are projected at B33bn, rising 2.1%qoq and
19.7%yoy, thanks to consolidation of its financial statement with
MerAlliance and King Oscar (TUF holds 100% stake) for a full quarter (in
4Q14, earnings of the two subsidiaries were recognized only two months).
Overall, consolidated net profit from the subsidiaries is estimated at B90m
in 1Q15. In addition, a low tuna raw material price of US$1,200/ton on
average in 4Q14, down as much as 23.9% from 3Q14, will fully benefit
profitability of TUF’s tuna business in this quarter because its average
product price is almost the same, making gross margin in 1Q15 increase to
15.0%. SG&A/sales would drop slightly from 10.3% in the previous quarter
to 10.0% because some were fixed expenses that did not increase
following sales.
 Bumble Bee to boost FY2016 profit by 66%yoy
We project TUF's net profit to jump by 16.7%yoy in 2015 and 65.8%yoy in
2016. EPS growth is expected at only 1.9%yoy in 2015, but projected to
leap 65.8%yoy in the next year. In 2015, US$250m or B7.5bn consolidated
net profit from Bumble Bee will be recognized in 4Q15, B1.4bn one-time
expense from the acquisition initially expected in 2016 (2.8% of TUF's total
acquisition value, based on MWB acquisition that made up 2.8% of total
acquisition value) will be booked, and 702 million new shares (14.7% of its
current total shares) will be issued for the acquisition at the price of B18.80
(15% discount from TUF's February average price of B22.12). The new
shares are expected to raise TUF's capital by B13.2bn or 26.5% of total
Bumble Bee acquisition expense; another B36.6bn or 73.5% will come from
borrowing.
TUF's net profit is projected to leap 65.8%yoy in 2016 because negative
factors would have been booked in 2015 and consolidated net profit from
Bumble Bee will be recognized for a full year in 2016; TUF is expected to
book US$1bn from Bumble Bee. As a result of the capital increase for the
Bumble Bee acquisition, TUF's interest bearing debt/equity is projected at
1.34x in 2015 and 1.29x in 2016, still in line with the company's policy of
maintaining the ratio near 1x to keep its payout ratio above 50% for the
next three years. After the acquisition of MW Brand in 2014, interest
bearing debt/equity surged above 2x, so the company delayed its dividend
payment for almost two years.
1Q15 Earnings Forecast
Bm
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15F
% QoQ
% YOY
Total Sales
29,464
30,788
27,948
30,258
30,423
32,772
33,466
2.1%
19.7%
Cost of Sale & Services
(25,379)
(26,812)
(23,791)
(25,373)
(25,177)
(28,041)
(28,446)
1.4%
19.6%
Gross Profit
4,085
3,976
4,158
4,885
5,246
4,731
5,020
6.1%
20.7%
SG&A
(2,591)
(2,864)
(2,715)
(2,848)
(3,084)
(3,384)
(3,347)
-1.1%
23.3%
Normalized Profit
1,494
1,112
1,443
2,037
2,162
1,348
1,673
24.2%
16.0%
(406)
(521)
(474)
(574)
(152)
(473)
(460)
-2.7%
-3.0%
Net Profit
1,004
815
950
1,522
1,922
698
1,128
61.5%
18.7%
EPS (B)
0.22
0.18
0.20
0.32
0.40
0.15
0.24
61.5%
18.7%
Gross Margin (%)
13.9%
12.9%
14.9%
16.1%
17.2%
14.4%
15.0%
SG&A / Sales (%)
8.8%
9.3%
9.7%
9.4%
10.1%
10.3%
10.0%
Net D/E Ratio
0.92
0.92
0.83
0.80
0.80
0.85
0.85
Financial Cost
Source : Financial Statement / ASP Research
Global Tuna Price
Profitability by Quarter
Bm
ล
านบาท
US$/ton
2,500
2,000
40,000
21%
35,000
18%
30,000
15%
25,000
12%
20,000
1,500
9%
15,000
Sales
3Q14
1Q14
3Q13
3Q12
1Q12
3Q11
1Q13
Net margin
Source : Financial Statement / ASP Research
Revenue Structure
Key Risks
1. THB/US$ appreciation – Under the assumption of
THB33/US$, every B1 appreciation would lower TUF's
FY2015 earnings and fair value by 3.3% and 4.5% from
the current forecast, respectively.
Value-added
product
15%
Pet food 7%
Tuna
44%
Salmon 4%
Sardine & Mackerel 6%
Shrimp feed 2%
Frozen shrimp
22%
Source : TUF
Gross margin
1Q14F
Jul 14
Source : TUF
Jan 15
Jan 14
Jul 13
Jan 13
Jul 12
Jul 11
Jan 12
Jul 10
Jan 11
Jul 09
Jan 10
Jan 09
Jul 08
Jan 08
Jul 07
Jan 07
-
1Q11
0%
3Q10
3%
0
1Q10
5,000
3Q09
6%
1Q08
500
10,000
1Q09
A vg 2555 = 2,127
A vg 2556 = 1,956
A vg 2557 = 1,361
3Q08
1,000
2. Lower-than expected gross margin – Under the
assumption of 15.7% gross margin, every 1% decrease in
gross margin would depress TUF's FY2015 earnings and
fair value by 25.3% and 34.6% from the current forecast,
respectively.
Source : ASP Research
2015-2017F Key Earning Forecast
Profit / Loss (Bm)
31-Dec
Statement of Cash flows (Bm)
31-Dec
2014
2015F
2016F
2017F
121,402
171,600
209,418
225,181
Cost of Sales
(102,382)
(144,578)
(173,359)
(185,350)
Gross Profit
19,020
27,022
36,059
39,832
Adjustments to reconcile net profit
Selling and Admin. Expense
(12,031)
(15,444)
(19,895)
(22,518)
Depreciation & Amortize
(1,673)
(2,496)
(3,726)
(4,568)
-
-
-
-
Increase / Decrease from Operating activities
Cash flows from operating - net
Sales
Interest Expense
Other Expense
Other Income
Net Profit
Unrealised Profit / Loss from FX
886
500
500
500
Net Profit before tax
6,523
9,821
13,177
13,485
Income Tax
(1,040)
(1,277)
(2,306)
(2,360)
Cash flows from Investing
Net Profit before Extra Items
4,808
7,262
9,784
10,012
Increase / Decrease from long-term investments
Profit / Loss for FX
284
82
71
71
Increase / Decrease from investment in Related Companies
Other Extra Items
-
(1,400)
-
-
Increase / Decrease from Fix Asset
5,092
5,944
9,854
10,083
1.07
1.09
1.80
1.84
4,808
7,262
9,784
10,012
1.07
1.34
1.80
1.84
Net Profit
EPS
Operating Profit
Norm EPS
Others
Cash flows from Investing - net
Others
7.61%
41.35%
22.04%
Net Profit Growth (%)
78.47%
16.74%
Gross Profit Margin (%)
15.67%
15.75%
4.19%
3.46%
Net Profit Margin (%)
7.53%
Increase / Decrease Capital & Premium on ordinary shares
65.78%
2.32%
Decrease dividend expense
17.22%
17.69%
4.71%
4.48%
Quarterly Profit / Loss (Bm)
2015F
2016F
2017F
5,092
5,944
9,854
10,083
2,518
2,185
3,213
3,213
-
-
-
(1,138)
(5,892)
(8,520)
(4,223)
9,276
3,557
5,674
10,224
(3,267)
(9,149)
(4,000)
(4,000)
(0)
(49,831)
-
-
-
-
-
(589)
(3,203)
229
9
-
-
(8,691)
(54,939)
(4,000)
(4,000)
5,304
45,719
496
2,130
Cash flows from financing activities
Increase / Decrease Loan
Sales Growth (%)
2014
Cash flows from operating
(652)
-
-
-
-
15,529
-
-
(2,398)
(2,972)
(4,927)
(5,041)
Cash flows from financing activities - net
1,022
58,276
(4,432)
(2,911)
Increase / Decrease - Net Profit
1,607
6,894
(2,758)
3,313
2017F
Balance Sheet (Bm)
1Q14
2Q14
3Q14
4Q14
31-Dec
2014
2015F
2016F
Sales
27,948
30,258
30,423
32,772
Cash & Cash equivalents
2,123
9,017
6,259
9,572
Cost of Sales
(23,791)
(25,373)
(25,177)
(28,041)
Trade accounts receivable
15,404
14,300
17,452
18,765
Gross Profit
Selling and Admin. Expense
Interest Expense
Other Income
Net Profit before tax
4,158
4,885
5,246
4,731
Inventories
37,518
52,209
62,602
66,932
(2,715)
(2,848)
(3,084)
(3,384)
Property, Plant & Equipment - net
23,052
29,977
30,726
31,474
(474)
(574)
(152)
(473)
115,443
188,804
199,457
209,820
163
157
168
398
Total Asset
1,151
1,728
2,300
1,345
Trade accounts payable
10,725
18,072
21,670
23,169
Income Tax
(302)
(158)
(297)
(283)
Other Current Liabilities
10,951
11,463
12,008
12,588
Net Profit before Extra Items
695
1,381
1,789
942
Borrowing
46,300
92,019
92,514
94,644
Profit / Loss for FX
254
141
133
(244)
Total Liabilities
67,976
121,554
126,193
130,402
MI
(154)
(189)
(214)
(119)
Net Profit
950
1,522
1,922
698
MI
3,802
5,083
6,170
7,283
Paid-up Capital
1,193
1,368
1,368
1,368
Share Premium
19,948
35,302
35,302
35,302
Retained earnings
Sales Growth (YoY)
14.35%
7.61%
3.26%
6.45%
Legal reserve
120
120
120
120
Net Profit Growth (YoY)
40.79%
323.89%
91.41%
-14.34%
Unappropriate
21,527
24,499
29,426
34,467
Gross Profit Margin
14.88%
16.14%
17.24%
14.44%
Shareholders' Equity
3.40%
5.03%
6.32%
2.13%
Liabilities & Shareholders' Equity
31-Dec
2014
2015F
2016F
2017F
31-Dec
Current Ratio (x)
1.51
1.34
1.28
1.34
Net Profit Margin
Key Financial Ratio
Account Receivables Turnover (day)
Inventory Turnover (day)
Account Payable Turnover (day)
Net Debt / Equity (x)
ROAE (%)
43,665
62,167
67,094
72,135
115,443
188,804
199,457
209,820
Key Assumptions
44
30
30
30
132
130
130
130
36
45
45
45
1.01
1.34
1.29
1.18
11.6%
13.7%
15.1%
14.9%
Tuna Quantity Sold (Tons)
Shrimp Quantity Sold (Tons)
Tuna Price (USD/ton)
Shrimp Price (Baht/kg.)
Foreign Exchange Rate (THB/USD)
2014
2015F
2016F
2017F
308,931
365,304
383,569
402,747
58,079
81,292
85,357
89,625
1,361
2,000
2,000
2,000
212
170
170
170
32.48
33.00
33.00
33.00