Seafood Sales Rebound-Weak Baht to Drive TU’s 1Q Earnings, Analysts Recomm. “BUY”

Asia Wealth Securities (AWS) estimated Thai Union Group Public Company Limited (TU)’s 1Q21 earnings at 1,293 million baht, growing 27% YoY but dropping 11% QoQ, as ambient seafood sales have improved at decreasing rate from a panic buy in early 2020 during the first wave of Covid-19 outbreak.

 

Frozen seafood sales are expected to rebound align with hotel and restaurant recovery especially in the U.S., while the PetCare business continues to grow, driving gross profit margin in 1Q21 to stand out at 17%, remaining at a high level despite dropping from 18% in 4Q20. Administration expense is projected at 11.4%. 

 

Red Lobster business is foreseen to improve thanks to a high season, a widely distributed Covid-19 vaccine in the U.S. and about 96% of total restaurants have already reopened. Therefore, AWS expected an improving earnings 1Q21 even though the business is still facing loss compared to a year ago.  

 

Maybank Kim Eng (Maybank) has recommended “BUY” on TU with a target price of ฿16.50/share, expecting sales of ambient seafood tend to decline from a high base but frozen seafood sales have recovered from city reopening. Red Lobster’s loss is expected to decline. 

 

For 1Q21 outlook, Maybank expected profit to rise 4% YoY, while 2Q21 earnings are likely to slow down from the high base last year. However, TU has a positive story on new investments, innovative product launches and the IPO of its subsidiary, TFM. 

 

The 2Q21 earnings should increase QoQ following seasonal impact, but may drop YoY from last year’s high base. Note that the high-margin ambient seafood saw strong sales during the lockdown. However, Red Lobster will recover significantly from heavy losses during the lockdown. Maybank maintained the 2021 earnings forecast, down on lower gross margins following the slowdown in ambient seafood sales. 

 

Phillip Securities (PS) foresaw sales from all units to continue their momentum, which would help to raise the Ambient and PetCare business margin in 1Q21. TU is also projected to be benefited from Thai baht weakening, thus, gross profit margin would stand at 17%, dropping from 18% in 4Q20. Overall, the sales volume would rise from lockdown easing across the globe.