KTB Securities (Thailand) (KTBST) has given a “BUY” recommendation on Thai Union Group Public Company Limited (TU) with an upgraded target price at ฿20.00/share over higher-than-expected 3Q earnings.
TU reported an increase in 3Q20 net profit by 50% YoY and 20% QoQ to Bt2.06bn. The earnings results exceeded the Bloomberg consensus forecast by 14% because of stronger gross profit margin. The increase in net profit was due to 1) total sales increased 9.3% QoQ to Bt34.78bn after sales of processed seafood rose +12.4% YoY and that of chilled/frozen seafood improved +4.7% YoY, and 2) gross profit margin widened sharply to 18.2%, which was above KTBST’s estimate of 17.5%, due to higher sales of processed seafood products that generally provide relatively higher profit margin. The baht weakness against other currencies also boded well for earnings growth.
KTBST upgraded 2020-21E net profit forecast to reflect stronger-than-expected gross profit margin. 9M20 net profit accounted for 87% of earlier 2020E net profit forecast. KTBST thus raised 2020E net profit forecast by 9% to Bt6.0bn, which indicates a strong growth of +58%, as the security company revised up gross profit margin estimate to 17.5% from 17.0% to reflect the strong gross profit margin of 17.6% in 9M20.
In 4Q20E, KTBST forecasted earnings to soften QoQ given a low season of the business, but expected the canned food business to remain strong given the COVID-19 outbreak in many countries worldwide.
In 2021E, KTBST upgraded its net profit forecast by 10% to Bt6.3bn, which represents a growth of +5%, as the security company raised gross profit margin assumption to 16.9% from 16.4% earlier.
KTBST’s target price increased to Bt20.00 from Bt18.00 but still kept 2020E PER multiples unchanged at 16x, which is -1 SD below its 5-yr average, following earnings upgrade. Key catalyst is the strong demand for ambient seafood given the COVID-19 outbreak in many countries worldwide.