Transformation And Marketing Efforts Will Drive Operational Efficiencies In The Future

Key Takeaways

• Strategic shifts in marketing and raw material management aim to enhance profitability by improving gross profit margins.
  
• Growth in the Ambient and PetCare categories, driven by premium offerings and rising demand, is expected to boost revenue.
  
• Economic and geopolitical challenges, increased costs, and tax rules may negatively impact Thai Union Group's revenue, profitability, and investor sentiment.

Catalysts

Manufactures and sells frozen, chilled, and canned seafood in Thailand and internationally.

• The reorganization and transformation initiated in 2024 are expected to yield significant cost savings in 2025 and beyond, with projected savings of USD 50 million, which should positively impact net margins and earnings through improved operational efficiencies.
  
• The focus on increasing the gross profit margin, aimed at reaching 19.5% or higher, is projected to be supported by a greater push in marketing and better management of raw material costs. This focus on margins suggests potential improvements in profitability.
  
• The anticipated recovery and growth in the Ambient category, especially in the U.S. market, and strategic marketing investments could drive revenue growth, further supported by an expected rise in sales volumes.
  
• The company's strategic moves in the PetCare division towards more premium product offerings, coupled with increasing demand in key markets like the U.S. and Europe, are likely to boost both revenue and margins.
  
• The implementation of share buyback programs reflects management's confidence in the company's undervaluation and could enhance earnings per share in the future.

Thai Union Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Thai Union Group's revenue will grow by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.4% today to 3.8% in 3 years time.
• Analysts expect earnings to reach THB 5.8 billion (and earnings per share of THB 1.31) by about March 2028, up from THB 4.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting THB6.5 billion in earnings, and the most bearish expecting THB4.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.6x on those 2028 earnings, up from 9.9x today. This future PE is greater than the current PE for the TH Food industry at 11.0x.
• Analysts expect the number of shares outstanding to decline by 2.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.4%, as per the Simply Wall St company report.

Thai Union Group Future Earnings Per Share Growth

Risks

• The global economic slowdown, pressure from geopolitics, high inflation, and changing consumer demand may adversely affect future revenue and profitability.
  
• Increased shrimp costs and exchange rate fluctuations (with the Thai baht strengthening) could negatively impact gross margins and earnings.
  
• Concerns about trade war tensions, the Russia-Ukraine conflict, and U.S. policy uncertainties could weigh on investor sentiment and affect revenue projections.
  
• Higher SG&A due to increased marketing spend and transformation costs could pressure net margins and overall profitability.
  
• The potential negative impact of new tax rules (BEPS 2.0) and increased effective tax rates in Thailand could reduce net income.

Valuation

• The analysts have a consensus price target of THB13.983 for Thai Union Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of THB16.9, and the most bearish reporting a price target of just THB10.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be THB152.2 billion, earnings will come to THB5.8 billion, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 8.4%.
• Given the current share price of THB11.3, the analyst price target of THB13.98 is 19.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.