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Thai Union Frozen Product

Innovation, new strategy to boost sector growth in long run BUY

Thai Union Frozen Product Plc (TUF)

Integrated strategy…value-added plus innovation

At the analyst meeting yesterday, CEOs of TUF's overseas businesses, i.e.

MW Brands, Chicken of the Sea, Chicken of the Sea Frozen Foods, and US

Pet Nutrition, showed their visions about the business outlook in the next

three years with foreseen continuous and prosperous growth from 2013. A

key factor to boost the growth is new innovation that is different from that of

rivals, such as introduction of necessary-for-life products apart from valueadded

products to attract customers. At the same time, the aforementioned

subsidiaries would also use an advantage from TUF's well-round seafood

business, from upstream to downstream, to seek lower cost of production

than peers. Moreover, each subsidiary also has its own business strategy e.g.

aggressive market expansion of MW Brands to serve customers in Europe,

the Middle East, and Africa, and aggressive marketing campaign of Chicken

of the Sea for its 100th anniversary through various forms of advertising to

highlight its leadership in the canned and frozen seafood business in the US.

- Reviving shrimp business and weak Baht to drive growth in 2014

We estimate FY2014 net profit of TUF at B5.8bn or remarkable growth of

59%yoy due to total sales that are projected to increase 18%yoy (higher

than the company's target of 10%yoy). Aside from the above-mentioned

overseas business growth, TUF would also benefit from growing salmon and

instant food businesses and recovering shrimp and aquamarine feed mill

businesses in Thailand after the shrimp early mortality syndrome (EMS) got

better, resulting in increasing shrimp supply from Thailand in the market.

Moreover, gross margin in 2014 would increase to 15.4percent from 13.3% in

2013, which is in line with the company's goal to enhance profitability by

increasing future selling price of shrimp products and selling price of Brands

products to reflect rising raw material cost. At the same time, the company

would still focus on decreasing production cost after it has imported high

technology machines into its production lines and developing new products to

add value for the food business in the future. In addition, the company will

also benefit from the Baht that would depreciated by 5%yoy in 2014 as 90%

of its income is in foreign currencies (mainly US Dollar) and only 80% of its

cost is in foreign money, thus likely boosting total sales and net profit of TUF

in 2014.

- Reiterate BUY. 2014 fair value is B76

We reiterate to buy TUF. 2014 fair value is B76. FY2014 net profit is

projected to grow most notably among peers. The current share price has

18% upside. Dividend yield is estimated at 3.9% p.a. (paying semiannually).

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