Equity Analysis /
Thailand

Thai Union Group PCL: Lower freight and raw material costs—key catalysts for 2023 earnings

  • RL’s demonstrable operational improvement expected in 1Q23

  • Decelerating YoY sales growth and lower GM expected in 4Q22

  • Lower prices of key raw materials and freight expected in 2023

Bualuang Securities
7 November 2022

TU’s 2023 earnings catalysts comprise lower freight cost, Red Lobster (RL)’s shallower loss and the GM expansion from cheaper key raw materials. Its scope for an upside to our 2023 earnings forecast will come from the freight cost reduction of at least Bt1bn in 2023.

RL’s demonstrable operational improvement expected in 1Q23

Although the firm has recently revised the 2022 target for RL’s share of loss (excl. the lease accounting adjustment) to be deeper 15-20% to Bt1.05-1.15bn loss, we expect RL’s share of loss to be reduced to Bt200-300m in 4Q22, which will provide a small sign of QoQ improvement (against its Bt339m equity loss in 3Q22). RL’s QoQ modest loss reduction in 4Q22 will be underpinned by the full-quarter impact of 9% sales price increase starting Aug 2022 to hedge against its cost inflation. RL’s share of loss will improve demonstrably within the next 12 months starting 1Q23, led by the new interim CEO and four strategies to turn around RL. Its 1Q23 operations will be supported by the high season of festivities and the Christian Lent period, leading to a visible RL recovery. We estimate that RL will post a Bt1.54bn equity loss (incl. lease accounting adjustment) in 2022 before its loss is reduced to Bt549m loss in 2023.