Despite the key challenge of cost inflation’s impact on GM, we believe that the firm will manage it successfully via negotiations for sales price increases in 1H22. Regardless, its earnings will continue to be solid in 4Q21 through 1H22 led by higher sales volume and price increases and sustained high GM. Our BUY rating stands based on sustained strong 2022 profit and the potential valuation unlocking from the listing of I-Tail (ITC) in 2H22.
Stronger sales growth for all business units in 4Q21
We estimate that 4Q21 sales will be Bt37.3bn, up 12% YoY and 5% QoQ, led by THB depreciation against USD and EUR, the impact of higher sales prices for the OEM products (caused by the price inflation such as a jump in tuna cost and rises in packaging and ingredient costs) and larger sales volume. Frozen seafood sales will lead the highest sales growth in 4Q21, followed by pet care and ambient seafood sales. We model Bt15bn in ambient seafood sales, up 4% YoY and 0.4% QoQ, thanks to the low 4Q20 base to its normalized level after the restocking during 2Q20-3Q20 against its YoY drop during 1Q21-3Q21—down 13.8% in 1Q21, down 6.8% in 2Q21 and down 8% in 3Q21. We estimate Bt16.2bn in 4Q21 frozen seafood sales, up a solid 18% YoY and 9% QoQ, and Bt6.08bn in 4Q21 pet care and value-added products sales, up 15% YoY and 6% QoQ. The jump in frozen seafood sales will be fueled by a continued recovery of food services in the US.