Analyst Expects TU to Gain Higher Profit in 2Q19 from Lower Tuna Price, Rec TP at ฿23.50

As of 15.45 local time in Thailand, Thai Union Group Company Limited (TU) share price was at THB18.50, increased 0.20 or 1.09%. During the session, the highest TU’s share price was at THB18.60 and the lowest was THB18.20 with a trading value of THB364 million.

Bualuang Securities (BLS) recommended “BUY” Thai Union Group Company Limited (TU) share with the target price at THB23.50/share. According to low raw tuna price climate and its more efficient tuna inventory management have led to a recovery of GM in 2Q19 to a new high since 2Q16, with 2Q19 core earnings to jump YoY. BLS estimates a THB1.33 billion net profit for 2Q19, up 5% QoQ and up strongly against THB10 million 2Q18 net profit. Excluding FX gain and THB220 million in additional 100-day employee benefits provision, core profit is forecast at THB1.55 billion, up 54% YoY and 40% QoQ.
The robust YoY core profit rise is attributable to the big GM recovery, outweighing the decline in sales and equity income from affiliates as well as higher interest and tax expenses. BLS expects GM to jump to a new high since 2Q16 (from 13.8% in 2Q18 and 14.9% in 1Q19 to 16% in 2Q19), fueled by fatter tuna GM (efficient tuna stock management and lower raw tuna costs) and a jump in pet care GM (lower raw tuna cost).

BLS expects 2Q19 sales to drop 2% YoY (due to stronger THB against USD and EURO and lower tuna sales price) but rise 14% QoQ (on high season). Red Lobster affiliate is expected to post a YoY shallower net loss in 2Q19. Raw tuna price hits three-and-a-half year low The raw skipjack tuna price of West Pacific Ocean (WPO) dropped further by 17% MoM to US1,000/tonne in June. It was expected given the abundant tuna catches from both WPO and East Pacific Ocean (EPO) with no additional warehouse capacity to handle excess tuna supplies. Therefore, the low-price tuna climate is likely to benefit branded tuna margin in the near term. With the use of average-cost inventory method and its shorter inventory duration of only two months, there shouldn’t be concerns about the negative impact of a swift decline in raw tuna price on its tuna GM in 3Q19. The current dominant “weak El Niño” condition is not directly relevant to the excess tuna supply in 2H19. 

Upon checking the consensus, TU’s target price is THB21.14/share which there are 17 analysts recommended “BUY”, 1 analyst recommended “HOLD”, and 1 analyst recommended “SELL”.