October 22, 2009

Thailand's leading canned and seafood exporter, Thai Union Frozen Products (TUF), third quarter earnings in 2009 is expected to remain healthy with only a marginal decline.

Disregarding extra items like the shut down expenses of the American Samoa plant expected at THB255 million and foreign exchange gains of around THB120 million, the TUF normalised profit should decline slightly by 3 percent year-on-year to THB998 million.

The reason behind this comes from sales contractions, while margins are projected to rise from 15 percent in Q3'08 to 16.1 percent. Improving margins result from lower costs at a greater pace than declining sales.

Tuna prices went down 24 percent year-on-year to US$1,400 per tonne. The company has also benefited from increasing sales of high-margin value added shrimp products in Japan, thanks to the ASEAN-FTA.

Sales in US dollar terms are forecast to slip 8 percent year-on-year to US$500 million and the same as sales in baht terms with a contraction of 8 percent year-on-year to THB16,97 million. This is due to lower raw tuna prices given the cost plus basis. The baht average depreciated marginally 0.3 percent year-on-year from THB33.83 per US dollar in Q3'08 to THB33.94 per US dollar. However, canned sardine and shrimp sales still show ongoing growth.

Weaker performance is expected in Q4'09 based on the seasonal impact, however, earnings should remain solid when compared year-on-year. Tuna prices have decreased to US$900 to US$1,000 per tonne so far, which are thus 20-percent lower than last October.

Next year, TUF margin should remain at a favourable level on the back of cost-savings of US$7.5 million from the Samoan plant relocation Georgia, US, from the beginning of this month. Margins will also be supported by new product launches and a greater contribution from high-margin value added products.

The normalised earnings are forecasted this year at THB2,896 million, up 28 percent year-on-year with a further growth of 9 percent to THB3,153 million in 2010.

US$1 = THB33.47 (Oct 22)