Equity Analysis /

Thai Union Feedmill PCL: 2022 earnings downgrade; weaker raw material costs expected in 2H22

  • Insight into 1Q22—YoY and QoQ profit tumble

  • Disappointing 1Q22 profit prompts a 2022 earnings downgrade

  • We expect 1Q22 profit to hit the nadir of the year before recovering QoQ in 2Q22

Bualuang Securities
25 April 2022

With dimmer 1H22 profit expectations due to the sustained high raw material costs (dampened by the prolonged Russia-Ukraine war), we have slashed our 2022 earnings forecast and downgraded its rating to only a TRADING BUY on expectations of reduced raw material costs and improved earnings in 2H22. The key variable to watch is the prices of raw materials (SBM, fishmeal and wheat).

Insight into 1Q22—YoY and QoQ profit tumble

We model a modest Bt3m net profit for 1Q22, down 95% YoY and 93% QoQ. Excluding FX and other extra items, we estimate a Bt2m core profit for 1Q22, down 96% YoY and 94% QoQ. These new earnings forecasts are significantly lower than our earlier forecasts of Bt35m net profit and Bt30m core profit due to lower GM than our previous estimate. The core profit tumble is attributed to: 1) a sharp decline in GM to 6.8% in 1Q22 (against 11.2% in 1Q21 and 9.4% in 4Q21) and 2) a jump in SG&A expenses led by higher expenses of its two subsidiaries (TUKL in Indonesia and AMG-TFM in Pakistan). The GM plunge is related to a jump in domestic soybean meal (SBM) and wheat costs. Regarding the 1Q22 average market prices, the premium-grade domestic SBM price was Bt21.4/kg, up 13% YoY and 9% QoQ while the grade-2 fishmeal price was Bt37/kg, up 22% YoY and 3% QoQ. The global wheat price was US$9.09/bushel, up 41% YoY and 16% QoQ.