December 9, 2013

During the third quarter of this year, Thai Union Frozen (TUF) earned an approximate 24% in revenues despite continuing effect of the Early Mortality Syndrome (EMS) in the shrimp industry.

The continuing EMS has clamped down on shrimp supply. Thailand's 2013 shrimp production is estimated at 250,000 tonnes, halved from 550,000 tonnes in 2012, and recovering slowly to reach 500,000 tonnes in 2016.

Upgrade to buy and lift target price to THB70 (US$2.18) from THB60 (US$1.86). This year's fourth quarter looks to be better than the previous quarter due to the gradual recovery of the shrimp business and the depreciation of the baht. The company's management believes the worst is over and is looking for a better core profit in 2014 for several reasons, including the baht depreciation that will give a boost to Thai exports.

TUF should enjoy the greatest benefit of peers, with each baht/US dollar depreciation estimated to increase net profit by 4.7%, compared to the 1-2% for CPF Tuna, approximately 49% of revenues in third quarter 2013. TUF's tuna business is also doing well, with a high gross margin which management says came from the drop in tuna prices created by oversupply when some tuna markets faced problems: financial in Europe and currency volatility in the Middle East. Gross margin for MW Brands in third quarter 2013 rose to 19% from 18% in second quarter of 2013 and 14% in first quarter of 2013 and for OEM to 9% from 7% in the second quarter of 2013 and 6% in the first quarter of 2013. This lifted average tuna gross margin to 14% in third quarter 2013 from 11.5% during the first half of 2013. The outlook for tuna should continue bright into 2014 with fish prices stable at a reasonable level that will entice customers to increase orders.