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VIET SEAFOOD

Stock Market Analysts: BUY Thai Union Shares Thailand, September 6, 12

Stable record high tuna raw material price in August BUY (maintained) Target Price: Bt85.00 Price (03/09/12): Bt76.50
Thai Union Frozen Products Plc (TUF)

What’s new? The average price of West Pacific Ocean (WPO) skipjack tuna stood at USD 2,280/ton in August, up by 24% YoY and 2% MoM (against USD 2,240/ton in July) and a new record. The YTD mean price is USD 2,145/ton, up 27% YoY. The mean price in August rose 12% from USD 2,030/ton in Jan. The 60 counts/kg shrimp price rose to Bt145/kg in early Sept, up 26% from Bt115/kg in early July, and equal to the price in early Jan 2012. The YTD mean shrimp price is Bt132/kg, down 7% YoY.

Record tuna price in August: The new record tuna price in August reaffirms our view that sustained high tuna prices will prevail through to YE12, driven by prevailing tight supplies as a result of unfavorable weather conditions and the temporary closures of several Pacific Ocean fishing grounds. Although we expect tuna prices to retreat in 4Q12, due to the period being high-catch season, that retreat will be modest (we assume a floor price of USD 2,000/ton). The 8M12 mean tuna price is in line with our 2012 assumption of USD 2,200/ton (up 25% YoY).

Full tuna cost pass-through: The stable high tuna price environment through to YE12 will benefit TUF on two fronts. First, price increases/discount reductions for customers will be easier. Secondly, TUF will save on promotional and marketing expenses. We expect GM to be sustained at 17% or more through 2H12.

Shrimp price bounce, due to a disease outbreak: The 26 percent shrimp price jump during the last two months was caused by outbreaks of Early Mortality Syndrome (EMS) disease in shrimp farms in China, Vietnam, Malaysia and Thailand, which squeezed supply. We expect the current high prices to be sustained through to YE12. TUF is likely maintain its shrimp margin, given that its sales prices typically increase one to three months after the farm price of shrimp has risen (the firm purchases most of its raw shrimp).

Action: Our BUY rating stands, premised on proven GM sustainability and scope for GM expansion from
synergy-building with MWB and incremental value from a new acquisition, which is expected in 4Q12.
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