July 29, 2010

TUF earnings growth to continue in H2 and next year

Earnings forecasts for Thai Union Frozen Products PCL (TUF) are adjusted up by 6%, 1% and 2% for 2010-2012.

The key change in 2010 earnings is the addition of an FX gain of THB373 million (US$11.6 million) in our projections. As a result of this earnings revision and the change in long-term dividend payout ratio assumption from 55% to 70%, to bring it in line with TUF's maximum dividend payout ratio in 2002-04, DDM fair price rises to THB50.75/share (US$1.57).

TUF's current price almost reflects the increase in demand for its shrimp in the US following the oil spill in the Gulf of Mexico. TUF's current PER of 12.0x in 2010 is also near its historical peak PER of 13.4x. TUF is downgraded from Buy to Outperform.

TUF will report a net profit of THB1 billion in 2Q10, up 8% on-year and 24.1% on-quarter. Its earnings growth in 2H10 will remain good on the back of rising sales of shrimp and shrimp feed and falling SG&A expense.