Equity Analysis /

Thai Union Group PCL: Cost inflation to ease in 2H22

  • Tuna price drop in May 2022—positive for 2H22 branded tuna GM

  • Core profit expected to resume YoY growth in 2H22

  • New 2022 guidance to lead to no earnings revision

Prasit Sujiravorakul
Prasit Sujiravorakul

Equity Research Analyst

Bualuang Securities
8 June 2022

Despite YoY earnings challenges in 2Q22 from cost inflation and Red Lobster’s (RL) higher equity loss, we see some signs of improvement on the cost inflation front such as the downward trend of raw tuna and salmon prices as well as of freight rates. Hence, the 2H22 core earnings are likely to resume a YoY growth. Our TRADING BUY stands, led by the anticipated improved earnings and the listing of I-Tail (ITC) in 2H22.

Tuna price drop in May 2022—positive for 2H22 branded tuna GM

The mean West Pacific Ocean (WPO) skipjack tuna price dropped to US$1,600/tonne in May 2022, so up 25% YoY but down 11% MoM, and against its recent high of $1,900/tonne in Mar 2022. We regard the slide in raw tuna price for two straight months ($1,800/tonne in Apr and $1,600/tonne in May) as positive given that it has dropped into the comfort zone of $1,300-1,800/tonne making it easier for repricing with clients. The tuna price drop in May to $1,600/tonne happened faster than our previous expectation of the drop in 2H22, led by the better tuna catch and increased tuna supply. Note that the ban period of using the Fishing Aggregate Devices (FAD) will start Jul-Oct 2022. We predict that $1,900/tonne will be the maximum raw tuna price and $1,500/tonne the minimum in 2022. In effect, the branded tuna GM is likely to improve in 2H22 given the 3-6 months of inventory and the lag time for repricing. We don’t see any problem for the OEM tuna GM in light of its 1-2 months repricing with clients.