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Thai Union Frozen Product

Every business to rebound in 2014 BUY

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.






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