See disclaimer at the end of report

COMPANY UPDATE
Thai Union Frozen
Products TUF TB / TUF.BK

14 October 2014
Insights into 3Q14earnings
recovery in play

Sector: Food Neutral
Rating: BUY
Target Price: Bt88.50
Price (13 October 2014): Bt72.50


Price chart
Investment thesis
Following the analyst meeting, we expect TUFs earnings recovery to
continue playing out through 2H14 (YoY and HoH growth), led by
fatter branded tuna margins, greater Thai shrimp profitability and a
turnaround at USPN. There may be scope for upside to our forecast if
the firm acquires a new food company in FY15. BUY!
Insights into 3Q14the YoY and QoQ core profit jumps
We estimate a Bt1.85bn net profit for 3Q14, up by 84% YoY and 22%
QoQ. Stripping out FX, core earnings would be Bt1.75bn, up by 94%
YoY and 27% QoQ. During the quarter, TUF reversed an accrued
interest expense provision amounting to Bt215m (which had been
booked in 2Q14) because a holder of a big tranche of convertible
bonds (CBs) exercised its call option to convert them into 45.36m
shares at Bt52.91/share. Hence, interest expenses would have fallen
in 3Q14. In the absence of CB conversion, our core profit estimate
would be Bt1.54bn for 3Q14, up 70% YoY but down 4% QoQ.
The expected YoY core profit jump is due to fatter GM for branded
tuna margin (led by the low tuna pricing environment in 1H14 and
sales price increases for branded EU tuna products since early 2014),
greater OEM sales volume, thanks to more promotional activities,
fatter shrimp margin as a result of a higher proportion of value-added
shrimp products in the sales mix and break-even at USPN. The
estimated QoQ rise was led by high season and break-even at USPN.
GM should have risen to 16.7% in 3Q14 from 13.9% in 3Q13 and
16.1% in 2Q14.
Tuna price volatility in 3Q14not much of a concern
Because of the greater proportion of branded tuna in the sales mix
(~60% of TUFs tuna sales), we believe that the 4Q14 blended tuna
margin will be sustained, despite raw tuna price volatility during 3Q14.
Branded tuna margin is supported by the low tuna pricing environment
that prevailed through 1H14. Note that there is a 4- to 6-month time
lag between a change in the cost of raw tuna and branded tuna GM
rising or falling. The 3Q14 raw tuna price volatility might squeeze
OEM tuna margin in 4Q14, as there may be stock losses on high-
priced inventory, but we believe that fatter branded margin will
outweigh the effect of slimmer OEM margin for the quarter.
The raw tuna price looks set to be low in the US$1,000-1,400/tonne
range during 4Q14, due to colder weather in major fishing grounds
(which causes tuna to swim nearer the surface, making them easier to
catch) and an expanded global fishing fleet. Hence, we expect a fatter
branded tuna margin in 1H15.

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10/13 12/13 02/14 04/14 06/14 08/14 10/14
Price Rel. to SET Bt Rel. Idx

Share price perf. (%) 1M 3M 12M
Relative to SET 5.9 9.8 29.2
Absolute 3.6 10.7 34.9

Key statistics
Market cap Bt83.2bn USD2.6bn
12-mth price range Bt55.0/Bt75.0
12-mth avg daily volume Bt183m USD5.7m
# of shares (m) 1,148
Est. f ree f loat (%) 60.3
Foreign limit (%) 45.0

Consensus
rating
BLS Target price
vs. Consensus
BLS earnings
vs. Consensus

03
97
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Hold
Sell
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BLS Cons.
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14E 15E
BLS Cons.
Btm

Financial summary
FY Ended 31 Dec 2013 2014E 2015E 2016E
Revenues (Btm) 112,813 123,494 142,564 153,013
Net prof it (Btm) 2,853 5,494 6,484 6,877
EPS (Bt) 2.49 4.69 5.43 5.76
EPS growth (%) -43.3% +88.8% +15.8% +6.1%
Core prof it (Btm) 2,186 5,058 5,984 6,377
Core EPS (Bt) 1.90 4.32 5.02 5.35
Core EPS growth (%) -55.7% +126.9% +16.1% +6.6%
PER (x) 24.8 15.4 13.3 12.6
PBV (x) 1.6 1.8 1.7 1.6
Dividend (Bt) 1.5 2.8 3.3 3.5
Dividend yield (%) 2.4 3.9 4.5 4.8
ROE (%) 7.4 13.4 14.7 14.7

CG rating




Prasit Sujiravorakul
Securities Fundamental Investment Analyst
prasit@bualuang.co.th
+66 2 618 1342



TUF - 2


TUF : Financial Tables Year

PROFIT & LOSS (Btm) 2012 2013 2014E 2015E 2016E
Revenue 106,698 112,813 123,494 142,564 153,013
Cost of sales and services (90,336) (98,590) (105,963) (122,638) (132,056)
Gross profit 16,362 14,222 17,532 19,926 20,957
SG&A (9,493) (10,234) (10,679) (12,196) (12,838)
EBIT 6,869 3,988 6,853 7,731 8,119
Interest expense (1,708) (1,655) (1,445) (1,252) (1,142)
Other income/exp. 485 798 949 1,090 1,167
EBT 5,646 3,131 6,357 7,569 8,144
Corporate tax (334) (495) (826) (1,060) (1,222)
After-tax net profit (loss) 5,312 2,636 5,531 6,510 6,922
Minority interest (778) (626) (665) (748) (783)
Equity earnings from aff iliates 70 176 192 222 238
Extra items 90 667 436 500 500
Net profit (loss) 4,694 2,853 5,494 6,484 6,877
Reported EPS 4.39 2.49 4.69 5.43 5.76
Fully diluted EPS 4.09 2.49 4.60 5.43 5.76
Core net profit 4,604 2,186 5,058 5,984 6,377
Core EPS 4.30 1.90 4.32 5.02 5.35
EBITDA 9,520 6,311 9,368 10,470 11,090
KEY RATIOS
Revenue growth (%) 8.1 5.7 9.5 15.4 7.3
Gross margin (%) 15.3 12.6 14.2 14.0 13.7
EBITDA margin (%) 8.9 5.6 7.6 7.3 7.2
Operating margin (%) 6.4 3.5 5.5 5.4 5.3
Net margin (%) 4.4 2.5 4.4 4.5 4.5
Core profit margin (%) 4.3 1.9 4.1 4.2 4.2
ROA (%) 5.3 2.8 5.0 5.7 5.8
ROCE (%) 6.8 3.6 6.5 7.4 7.8
Asset turnover (x) 1.2 1.1 1.1 1.3 1.3
Current ratio (x) 1.4 1.2 1.2 1.1 1.1
Gearing ratio (x) 0.8 0.9 0.8 0.7 0.6
Interest coverage (x) 4.0 2.4 4.7 6.2 7.1
BALANCE SHEET (Btm)
Cash & Equivalent 1,400 3,214 3,288 2,733 2,738
Accounts receivable 11,918 13,948 14,210 15,623 15,930
Inventory 33,290 36,917 34,837 36,959 35,094
PP&E-net 17,923 21,473 22,584 23,581 24,462
Other assets 26,622 29,349 27,783 31,240 33,508
Total assets 94,759 108,290 109,751 117,676 119,657
Accounts payable 10,545 9,802 10,741 14,784 16,281
ST debts & current portion 23,410 33,452 31,980 32,469 31,242
Long-term debt 9,159 6,885 7,191 5,286 2,391
Other liabilities 7,268 8,414 8,645 9,979 10,711
Total liabilities 54,415 64,943 62,581 67,164 65,611
Paid-up capital 1,148 1,148 1,165 1,165 1,165
Share premium 17,501 17,501 18,443 18,443 18,443
Retained earnings 17,820 18,836 21,034 23,627 26,378
Shareholders equity 37,215 39,536 42,694 45,287 48,038
Minority interests 3,128 3,811 4,476 5,224 6,007
Total Liab.&Shareholders' equity 94,759 108,290 109,751 117,676 119,657
CASH FLOW (Btm)
Net income 4,694 2,853 5,494 6,484 6,877
Depreciation and amortization 2,651 2,323 2,516 2,740 2,971
Change in working capital (5,242) (6,399) 2,757 507 3,055
FX, non-cash adjustment & others 2,349 5,095 31 341 217
Cash flows from operating activities 4,451 3,871 10,798 10,071 13,121
Capex (Invest)/Divest (3,647) (4,227) (3,626) (3,737) (3,852)
Others (138) (1,772) (3,984) (2,027) (1,619)
Cash flows from investing activities (3,785) (5,999) (7,610) (5,764) (5,471)
Debt f inancing (repayment) (5,191) 5,763 (666) (916) (3,622)
Equity f inancing 9,533 0 960 0 0
Dividend payment (1,884) (1,836) (3,296) (3,890) (4,126)
Others (138) (1,772) (3,984) (2,027) (1,619)
Cash flows from financing activities (168) 2,348 (3,002) (4,806) (7,749)
Net change in cash 498 221 186 (499) (99)
Free cash flow (Btm) 804 (356) 7,171 6,334 9,269
FCF per share (Bt) 0.7 (0.3) 6.0 5.3 7.8
Key assumptions 2012 2013 2014E 2015E 2016E
Sales volume - tuna loin (tonnes) 8,455 13,588 13,996 14,416 14,848
Sales volume - canned tuna (tonnes) 291,051 280,436 288,849 297,515 306,440
Sales volume - f rozen shrimp (tonnes) 58,646 64,263 66,191 68,177 70,222
Avg. selling price - tuna loin (US$/tonne) 5,503 5,302 5,514 5,790 6,079
Avg. selling price - canned tuna (US$/ton 3,271 3,824 3,977 4,176 4,384
Avg. selling price - frozen shrimp (US$/to 10,192 12,046 12,528 13,154 13,812

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AP / Cost of Goods (days)
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(ST debt + Interest) / EBITDA
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2.10
1.49
2.82
3.26
3.46
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Payout ratio (%)
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Revenue growth and asset turnover
A/C receivable & A/C payable days
Profit margins
Capital expenditure
Debt serviceability
Dividend payout













TUF - 3

TUF : Financial Tables Quarter
QUARTERLY PROFIT & LOSS (Btm) 2Q13 3Q13 4Q13 1Q14 2Q14
Revenue 28,119 29,464 30,788 27,948 30,258
Cost of sales and services (24,623) (25,379) (26,812) (23,791) (25,373)
Gross profit 3,496 4,085 3,976 4,158 4,885
SG&A (2,538) (2,591) (2,864) (2,715) (2,848)
EBIT 959 1,494 1,112 1,443 2,037
Interest expense (365) (406) (521) (474) (574)
Other income/exp. 151 168 253 207 219
EBT 744 1,257 845 1,176 1,682
Corporate tax (157) (266) 28 (302) (158)
After-tax net prof it (loss) 587 991 873 874 1,524
Minority interest (39) (150) (356) (154) (189)
Equity earnings from af filiates 48 60 48 39 46
Extra items (237) 103 250 190 141
Net profit (loss) 359 1,004 815 950 1,522
Reported EPS 0.31 0.87 0.71 0.83 1.33
Fully diluted EPS 0.31 0.87 0.71 0.83 1.33
Core net profit 596 901 565 759 1,381
Core EPS 0.52 0.79 0.49 0.66 1.20
EBITDA 1,500 2,087 1,788 2,039 2,656
KEY RATIOS
Gross margin (%) 12.4 13.9 12.9 14.9 16.1
EBITDA margin (%) 5.3 7.1 5.8 7.3 8.8
Operating margin (%) 3.4 5.1 3.6 5.2 6.7
Net margin (%) 1.3 3.4 2.6 3.4 5.0
Core profit margin (%) 2.1 3.1 1.8 2.7 4.6
BV (Bt) 35.6 36.5 37.8 38.6 38.7
ROE (%) 3.9 10.6 8.2 9.4 14.9
ROA (%) 1.4 3.9 3.0 3.4 5.5
Current ratio (x) 1.3 1.2 1.2 1.5 1.3
Gearing ratio (x) 1.0 1.0 1.0 1.0 1.0
Interest coverage (x) 2.6 3.7 2.1 3.0 3.5
QUARTERLY BALANCE SHEET (Btm)
Cash & Equivalent 1,610 1,552 3,214 8,460 8,385
Accounts receivable 14,754 13,055 13,948 13,284 14,859
Inventory 34,637 36,181 36,917 34,464 33,885
PP&E-net 21,229 21,804 21,473 21,354 21,318
Other assets 27,907 28,898 31,273 30,862 30,862
Total assets 101,763 103,135 108,290 110,099 110,789
Accounts payable 10,300 10,891 9,802 9,203 11,180
ST debts & current portion 29,689 32,278 33,452 27,449 29,292
Long-term debt 11,517 7,955 9,598 17,664 14,847
Other liabilities 7,508 8,354 8,414 8,277 7,956
Total liabilities 60,887 61,275 64,943 65,777 66,323
Paid-up capital 1,148 1,148 1,148 1,148 1,148
Share premium 17,501 17,501 17,501 17,501 17,501
Retained earnings 17,706 18,021 18,836 19,778 20,280
Shareholders equity 37,172 37,984 39,536 40,411 40,816
Minority interests 3,704 3,876 3,811 3,911 3,649
Total Liab.&Shareholders' equity 101,763 103,135 108,290 110,099 110,789
Key statistics 2Q13 3Q13 4Q13 1Q14 2Q14
Sales volume - tuna (tonnes) 78,073 76,276 73,990 75,286 81,286
Sales volume - f rozen shrimp (tonnes) 17,138 17,317 17,811 12,302 13,496
Sales volume - shrimp f eed (tonnes) 27,909 28,453 22,622 17,403 22,143
Avg. selling price - tuna (US$/tonne) 176,574 182,996 183,726 178,850 181,871
Avg. selling price - f rozen shrimp (US$/to 331,608 391,970 441,824 478,756 460,020
Avg. selling price - shrimp f eed (US$/ton 32,377 32,387 32,594 31,539 32,471

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Gross profit margin










Company profile
Thai Union Frozen Products (TUF) is a leading producer and exporter of frozen and canned seafood. It has 18 subsidiariesnine domestic
and nine overseasand six affiliates to cater to its expansion and integration plans. Its product range includes tuna loin, canned tuna,
frozen shrimp, canned pet food, canned seafood, cephalopod, canned sardines and mackerel and shrimp feed. As of 2Q14, tuna and
frozen shrimp represented the largest contributors53% and 21%, respectively, of consolidated sales.





TUF - 4


Figure 1: WPO and EPO skipjack tuna prices Figure 2: Skipjack, Yellowfin and Albacore tuna prices
WPO Sep =
1,280
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WPO price EPO price
(US$/tonne)
EPO Sep =
1,633

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Skipjack
Yellowfin
Albacore
(US$/tonne)
Albacore
Sep =
3,000
Yellowfin Sep
= 2,400
Skipjack
Sep =
1,280

Source: Company data Source: Company data

Figure 3: Daily shrimp price40 counts/kg Figure 4: Daily shrimp price70 counts/kg
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(Bt/kg)
Oct 13 = Bt215/kg
Shrimp price - 40 counts/kg

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Oct 13 = Bt200/kg
Shrimp price - 70 counts/kg
Source: www.oae.go.th Source: www.oae.go.th

Figure 5: Monthly shrimp price40 counts/kg Figure 6: Monthly shrimp price60 counts/kg
Sep =
Bt225/kg
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-
0
8
J
a
n
-
0
9
A
p
r
-
0
9
J
u
l
y
-
0
9
O
c
t
-
0
9
J
a
n
-
1
0
A
p
r
-
1
0
J
u
l
y
-
1
0
O
c
t
-
1
0
J
a
n
-
1
1
A
p
r
-
1
1
J
u
l
-
1
1
O
c
t
-
1
1
J
a
n
-
1
2
A
p
r
-
1
2
J
u
l
y
-
1
2
O
c
t
-
1
2
J
a
n
-
1
3
A
p
r
-
1
3
J
u
l
y
-
1
3
O
c
t
-
1
3
J
a
n
-
1
4
A
p
r
-
1
4
J
u
l
y
-
1
4
Shrimp price - 40 counts/kg

-
50
100
150
200
250
300
J
a
n
-
0
8
A
p
r
-
0
8
J
u
l
-
0
8
O
c
t
-
0
8
J
a
n
-
0
9
A
p
r
-
0
9
J
u
l
y
-
0
9
O
c
t
-
0
9
J
a
n
-
1
0
A
p
r
-
1
0
J
u
l
y
-
1
0
O
c
t
-
1
0
J
a
n
-
1
1
A
p
r
-
1
1
J
u
l
-
1
1
O
c
t
-
1
1
J
a
n
-
1
2
A
p
r
-
1
2
J
u
l
-
1
2
O
c
t
-
1
2
J
a
n
-
1
3
A
p
r
-
1
3
J
u
l
y
-
1
3
O
c
t
-
1
3
J
a
n
-
1
4
A
p
r
-
1
4
J
u
l
y
-
1
4
Shrimp price - 60 counts/kg
Sep = Bt220/kg
Source: www.oae.go.th


Source: www.oae.go.th




TUF - 5


Figure 7: 3Q14 earnings preview

3Q14E 3Q13 % YoY 2Q14 % QoQ 9M14E 9M13 % YoY
Sales 31,821 29,464 8.0 30,258 5.2 90,028 82,025 9.8
Cost of sales (26,507) (25,379) 4.4 (25,373) 4.5 (75,671) (71,778) 5.4
Gross profit 5,314 4,085 30.1 4,885 8.8 14,357 10,246 40.1
SG&A (3,087) (2,591) 19.1 (2,848) 8.4 (8,650) (7,370) 17.4
EBIT 2,227 1,494 49.1 2,037 9.3 5,707 2,876 98.5
Interest expense (165) (406) (59.3) (574) (71.3) (1,214) (1,134) 7.0
Other income/exp. 230 168 36.8 219 5.0 656 545 20.5
EBT 2,292 1,257 82.4 1,682 36.3 5,150 2,286 125.2
Corporate tax (344) (266) 29.4 (158) 118.3 (803) (523) 53.7
After-tax profit 1,949 991 96.6 1,524 27.8 4,347 1,764 146.5
Minority interest (250) (150) 67.0 (189) 32.0 (593) (270) 119.7
Equity earnings 51 60 (14.6) 46 9.9 136 127 7.1
Extra items & FX 100 103 (2.8) 141 (28.8) 431 417 3.4
Net profit 1,850 1,004 84.2 1,522 21.6 4,321 2,038 112.1
Reported EPS 1.61 0.87 84.2 1.33 21.6 3.77 1.78 112.1
Fully diluted EPS 1.61 0.87 84.2 1.33 21.6 3.77 1.78 112.1
Core net profit 1,750 901 94.1 1,381 26.7 3,890 1,621 140.0
Core EPS 1.52 0.79 94.1 1.20 26.7 3.39 1.41 140.0
EBITDA 2,857 2,087 36.9 2,656 7.6 7,553 4,523 67.0
Gross margin (%) 16.7 13.9 16.1 15.9 12.5
EBITDA margin (%) 9.0 7.1 8.8 8.4 5.5
Operating margin (%) 7.0 5.1 6.7 6.3 3.5
Net margin (%) 5.8 3.4 5.0 4.8 2.5
Core profit margin (%) 5.5 3.1 4.6 4.3 2.0



3Q14 3Q13 % YoY 2Q14 % QoQ 9M14 9M13 % YoY
Tuna price (US$/tonne)
- WPO 1,560 1,868 (16.5) 1,473 5.9 1,419 2,082 (31.8)
- IDO 1,567 2,017 (22.3) 1,265 23.8 1,313 2,172 (39.6)
- EPO 1,633 2,050 (20.3) 1,433 14.0 1,494 2,161 (30.8)
Shrimp (Bt/kg)
- 40 pieces/kg 225 243 (7.5) 243 (7.5) 249 214 16.6
- 60 pieices/kg 220 233 (5.7) 237 (7.0) 242 204 18.8


Sources: Company data, Bualuang Research estimates













TUF - 6

Sector comparisons
Bloomberg Price Market Cap
Code (local curr.)
(US$
equivalent) 2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E
Seafresh Industry CFRESH TB THB9.05 129 9.6 8.6 n.m. 11.7 2.5 2.1 31.3 27.4 4.2 4.7
Charoen Pokphand Foods CPF TB THB32.00 7,645 19.4 15.0 81.2 29.3 1.8 1.7 11.4 13.9 2.8 3.7
GFPT GFPT TB THB20.40 789 13.6 10.8 25.1 26.1 2.9 2.4 23.4 24.9 2.2 2.8
Khon Kaen Sugar Industry KSL TB THB13.00 670 12.0 10.1 21.8 18.9 1.4 1.3 15.9 17.2 3.7 4.3
Thai Union Frozen Products TUF TB THB72.50 2,567 15.7 13.3 85.2 18.0 1.8 1.7 13.4 14.7 3.9 4.5
Thai Vegetable Oil TVO TB THB22.10 551 12.1 12.7 53.8 -4.6 2.5 2.3 21.3 19.4 6.2 5.9
Simple average 13.7 11.8 53.4 16.6 2.2 1.9 19.5 19.6 3.8 4.3
PER (x) EPS Growth (%) PBV (x) ROE (%) Div Yield (%)
PER band versus SD (next 12 months) PBV band versus SD (next 12 months)
0
5
10
15
20
25
30
YE01 YE03 YE05 YE07 YE09 YE11 YE13 YE15
x
-2.0 SD = 1.94x
+2.0 SD = 20.60x
+3.0 SD = 25.26x
LT-average = 11.27x
-1.0 SD = 6.61x
+1.0 SD = 15.94x

0.1
0.6
1.1
1.6
2.1
YE01 YE03 YE05 YE07 YE09 YE11 YE13 YE15
+2.0 SD = 2.17x
-1.0 SD = 1.17x
+1.0 SD = 1.84x
x
LT-average = 1.50x
-2.0 SD = 0.84x
PER band and share price PBV band and share price
0
10
20
30
40
50
60
70
80
90
YE01 YE03 YE05 YE07 YE09 YE11 YE13 YE15
Bt/share
7x
9x
11x
13x
15x
5x

0
20
40
60
80
100
120
YE01 YE03 YE05 YE07 YE09 YE11 YE13 YE15
Bt/share
1
1
2.6x
2.1x
1.7x
1.4x
1.1x
0.8x
Foreign holding Management trading activities during past six months
46.6
0
10
20
30
40
50
5/14 6/14 7/14 8/14 9/14 10/14
TUF Food %


-10.0
-5.0
0.0
5.0
10.0
5/14 6/14 7/14 8/14 9/14 10/14
Buy
Sell
Btm




TUF - 7



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