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Thai Union Frozen Product

Entering uptrend BUY

Thai Union Frozen Product Plc (TUF)

TUF's tuna and shrimp business is projected to revive in 2H14.

However, the factor to beware of in the short term is tuna raw

material price that is entering an uptrend cycle. If the price increase

is not sharp and rapid, the effect on gross margin will be limited and

there will not be an impact on our forecast.


- High net profit growth foreseen in 2Q14, thanks to tuna and shrimp business

We estimate 2Q14 net profit at B1.1bn or the growth of 16.0%qoq and

206.8%yoy, thanks to the export season. For the tuna business, continuous

growth is foreseen because OEMs have increased their tuna orders after

global tuna price exhibited the first hike in one year and a half. For the local

processed shrimp business, the production has resumed after a one-month

halt in 1Q14 for improvement of the production line. Other businesses

would stay flat from the prior quarter. Overall, 1H14 net profit is projected

at B2bn, jumping 98.4%yoy and making up 39% of our FY2014 forecast.

- Good outlook in 2H14 on hope tuna raw material price not too fluctuating

Continued growth is foreseen in 2H14. Overseas business (through COTS

and MWB, subsidiaries) would grow from its strategy of introducing new

products that are different from rivals' and adding value to products.

Likewise, the shrimp business will also recover since shrimp supply in the

market will increase after the white shrimp disease receded. However, there

is short-term risk from rising tuna raw material price; if the increase does

not so sharp and rapid that leads to difficult raw material stock

management, the effect on gross margin and FY2014 forecast will not be

extensive.

- Share price laggard peers and SET

We recommend BUY. The current share price is laggard those of peers and

SET, implying a very limited downside and still providing over 16% upside

from 2014 fair value of B76 (DCF, WACC of 7.34%). 1H14 dividend yield is

expected at B0.89/share or a half year dividend yield of 1.4%.


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