Equity Analysis /

Thai Union Group PCL: RL turnaround targeted in 2023

  • RL targeted to reach break-even point in 2023

  • Short-term blip of tuna price rise in 3Q22; GM to improve in 2H22

  • On track to meet 2025 targets

Bualuang Securities
19 September 2022

With the sustained strong GM for its pet care unit and improved GM for frozen and ambient seafood units along with lower freight costs in 2H22, we expect its 2H22 earnings to improve HoH. Our TRADING BUY stands in anticipation of 2H22 improved earnings, the valuation unlocking from listing of I-Tail in 4Q22 and its cheap valuation—2022 PER of 11.4x against its long-term mean of 13.7x.

RL targeted to reach break-even point in 2023

TU’s CEO expects to see Red Lobster (RL)’s operations improve within the next 12 months, led by the sales price increases in 2H22 to cope with inflation and RL’s organization restructuring by removing one executive vice president and six vice presidents and promoting directors to manage a total of 700 RL restaurant outlets. In so doing, the reorganized RL is expected to be leaner, speedier in making decisions and more efficient. Moreover, the brand-new electronic menu will boost sales and lower costs going forward. CEO assumes that 2023 will be the turnaround year for RL. This is despite RL’s equity loss (excl. lease accounting adjustment) for 2022 having been revised up from Bt600-650m loss to Bt900-950m loss due to bigger-than-expected 1H22 loss. We conservatively assume RL’s equity loss (excl. lease accounting adjustment) at Bt1.05bn in 2022 and Bt305m loss in 2023.