Thai Union Group: 1Q25 core earnings lagged expectations
- 1Q25 core profit lagged expectations following higher-than-expected SG&A expenses and soft sales
- 1Q25 sales hit by soft global demand and strong THB; gross margin remained healthy from rising tuna prices, cost efficiency, and better sales mix
- High SG&A expenses and uncertainties from US reciprocal tariff to continue pressuring performance in 2Q25
- Maintain HOLD with an unchanged TP of THB 12.50
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Earnings review
Softer-than-expected core profit in 1Q25. Thai Union reported a 1Q25 core profit of THB622mn (-31.7% y/y, -44.9% q/q), c.15% behind both the consensus and our estimates. The softer q/q performance would mainly be due to seasonality. On a y/y basis, performance was dragged by weaker sales after tuna prices hiked from February, soft demand in the US and Europe markets, and a rise in expenses (mostly related to transformation costs, freight costs, and marketing expenses) which offset benefits from wider gross margin.
Nevertheless, we note that in 1Q25 TU recorded huge extra gains, mostly from a one-off recognition of a THB381mn non-cash deferred tax reversal related to Avanti’s shareholder restructuring. As a result, 1Q25 net profit came in at THB1.02bn (-11.6% y/y, -16.0% q/q).
Sales growth contraction y/y. Thai Union delivered a total revenue of THB29.79bn in 1Q25 (-10.3% y/y). The weaker sales y/y was impacted by a drop in most category sales except the PetCare business. Ambient seafood sales dropped 14% y/y following softer demand in Europe and the Middle East markets.
In addition, the tuna price hike to USD1,700/tonne (+10% m/m, +31% y/y) in February also slowed down new orders from ambient seafood businesses’ original equipment manufacturer (OEM) customers.
Frozen seafood sales dropped 12% y/y given lower demand in the US after shrimp prices rose. PetCare sales were still able to increase 6% y/y but lagged the company target for 2025, no thanks to freight issues continuing to impact customer logistics management. Value-added product sales also inched down 3% y/y on lower selling prices.
Furthermore, overall sales were also negatively impacted by the strong THB during 1Q25 compared to the previous year (8% against EUR and 5% against USD).
EBIT margin was narrower from a hike in gross margin. 1Q25 gross margin came in at 18.8% (+1.6ppt y/y, +0.2ppt q/q), mostly supported by gross margin for the ambient seafood and frozen seafood businesses improving, along with a better overall revenue mix.
Ambient seafood’s improving gross profit was supported by an uptrend in tuna raw material prices during the quarter, commercial improvement, and the cost efficiency.
Frozen seafood’s gross margin also improved y/y from higher profitability in the feed and chilled segments. Nevertheless, PetCare’s gross margin was impacted by the premium mix dropping to 48.7% in 1Q25 from 54.8% in 1Q24.
Nonetheless, SG&A-to-sales rose from 12.6% in 1Q24 to 15.8% in 1Q25 following higher freight costs, ongoing transformation costs (THB298mn in 1Q25), lower leverage from soft sales, and active marketing campaigns. Net-net, EBIT margin declined 1.7ppt both y/y and q/q to 3.6% in 1Q25.
Softer core profit margin y/y. Associate income showed strong improvement, with growth of 83% y/y following Avanti’s strong performance. Interest expenses declined 10% y/y after the global downturn in interest rates. Nevertheless, 1Q25 core profit margin decreased from 2.7% in 1Q24 to 2.1% in 1Q25 from the sharp rise in SG&A expenses.
Outlook
Improving earnings expected for upcoming quarter, but uncertainties on US reciprocal tariffs linger. We expect sales and core profit to improve q/q in 2Q25F, mostly on seasonality, easing freight issues in the PetCare business, and the resumption of OEM orders for the ambient seafood business. We also see a weaker THB MTD, which should benefit the company.
Nevertheless, we believe y/y growth will be limited due to higher expenses, such as transformation costs and increased effective tax rate. We expect the benefits from the transformation project to materialise in 2H25.
Another challenge for Thai Union is the US’s 36% in reciprocal tariffs on Thai products, which could significantly impact the company’s sales. In 2024, North America accounted for 39% of TU’s revenue, from both local production and imports from its ASEAN and Ghana plants. We note that the US production plant will likely face tariff impacts due to its reliance on raw materials from Thailand.
Management highlights that TU has accelerated its raw material shipment to US production during the 90-days US reciprocal tariff in an effort to manage uncertainties as well as to facilitate some customers stocking up their inventories. Per our estimates, every 1% decline in sales would lead to a c.2% downside to FY25F earnings.
2025 guidance revised down. During an analyst meeting on 9 May 2025, management has communicated its new guidance after reflecting upon the 10% US tariff as per the following table. If an additional US reciprocal tariff of 36% is imposed on Thailand, TU plans to relocate some production from Thailand facilities to the Ghana and Seychelles facilities where the facility is exempt from the upcoming additional reciprocal tariffs. To manage uncertainties, management also cut its 2025 capex from THB4.5-5bn to THB3-3.5bn.
TU already bought back 5.15% of paid-up shares as of 8 May 2025. On 3 April, TU’s BOD approved an amendment to the company’s share repurchase programme, increasing the maximum amount (from THB3bn to THB5bn) and number of shares (from 200mn to 445mn) to be repurchased for financial management purposes.
The duration of the programme remains unchanged, from 2 January 2025 to 30 June 2025. Sources of funding comprise cash from operations and dividends and loan repayments from subsidiary. Thus, following the amendment, maximum shares repurchased now account for up to 9.99% of the company’s total paid-up shares, up from 4.49% previously. As of 8 April 2025, the company has already cumulatively bought 229.48mn shares (5.15% of paid-up shares) from the market at a total budget of THB2.61bn (implying average costs per share of THB11.40).
Recommendation
Maintain HOLD with an unchanged TP of THB12.50. We maintain our forecasts and TP of THB12.50. Our TP is pegged to a 12.7x PB/V, equivalent to -0.5SD of its five-year historical average, to reflect the earnings contraction in FY25F. Despite upsides to our target price, we maintain our HOLD rating for TU following uncertainties on US reciprocal tariff and soft global demand.
FY Dec (Btm) | 1Q24 | 2Q24 | 3Q24 | 4Q24 | 1Q25 |
| Chg. | Chg. |
yoy | qoq | |||||||
Sales | 33,220 | 35,283 | 34,840 | 35,090 | 29,789 | -10.3% | -15.1% | |
Cost of Goods Sold | (27,478) | (28,748) | (28,047) | (28,537) | (24,177) | -12.0% | -15.3% | |
Gross Profit | 5,742 | 6,535 | 6,793 | 6,554 | 5,611 |
| -2.3% | -14.4% |
SG&A exp. | (4,197) | (4,582) | (4,693) | (4,929) | (4,700) | 12.0% | -4.6% | |
Operating profit | 1,545 | 1,953 | 2,100 | 1,625 | 911 | -41.0% | -43.9% | |
Other income | 227 | 256 | 252 | 235 | 176 | -22.6% | -25.2% | |
EBIT | 1,772 | 2,209 | 2,351 | 1,860 | 1,087 | -38.7% | -41.6% | |
Associate inc. | 159 | 179 | 275 | 157 | 291 | 83.1% | 85.4% | |
Interest exp. | (647) | (620) | (627) | (598) | (585) | -9.5% | -2.1% | |
Pretax Profit | 1,284 | 1,768 | 1,999 | 1,419 | 792 | -38.3% | -44.2% | |
Tax | (118) | (44) | (208) | (50) | 41 | -134.9% | -182.8% | |
Minority Int. | (256) | (281) | (311) | (241) | (212) | -17.2% | -12.2% | |
Norm Profit | 911 | 1,443 | 1,480 | 1,128 | 622 | -31.7% | -44.9% | |
Extra items | 243 | (224) | (80) | 85 | 397 | 63.7% | 369.2% | |
Net Profit | 1,153 | 1,219 | 1,400 | 1,213 | 1,019 |
| -11.6% | -16.0% |
Margins (%) |
|
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|
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Gross Margin | 17.3% | 18.5% | 19.5% | 18.7% | 18.8% | 1.6 | 0.2 | |
SGA % Sales | 12.6% | 13.0% | 13.5% | 14.0% | 15.8% | 3.1 | 1.7 | |
EBIT Margin | 5.3% | 6.3% | 6.7% | 5.3% | 3.6% | (1.7) | (1.7) | |
Core Net Margin | 2.7% | 4.1% | 4.2% | 3.2% | 2.1% | (0.7) | (1.1) | |
Net Margin | 3.5% | 3.5% | 4.0% | 3.5% | 3.4% | (0.0) | (0.0) | |
Effective tax rate | -10.5% | -2.8% | -12.1% | -3.9% | 8.2% | 18.7 | 12.1 |
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