Thai Union Group: Another challenging quarter
- Core earnings expected to contract y/y in 2Q25F
- Overall performance dragged by strong THB and rising expenses, which continued to outpace gross margin expansion
- Entering high season in 2H25, but uncertainty remains regarding US reciprocal tariffs
- Maintain HOLD with lower TP of THB11.00, from THB12.50
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Soft 2Q25F core performance. We estimate 2Q25F core profit of THB1.21bn (-16.3% y/y, +94% q/q). The firm recovery in q/q performance would mainly be due to seasonality, more favourable tuna raw material costs, as well as the more favourable exchange rate.
On a y/y basis, performance was affected by soft sales (mainly hit by strong THB against key currencies) and rising expenses (mostly related to transformation costs and marketing expenses), which outpaced gross margin expansion. In 1Q25F, we estimate a forex gain of THB75mn, resulting in a net profit of THB1.28bn (+5.2% y/y and +25.8% y/y).
Strong THB weighed down sales. We expect the company to post total revenue of THB34.22bn in 2Q25F (-3.0% y/y). Nevertheless, stripping out the forex impacts, we should see organic growth y/y across all segments except the frozen seafood business. As per discussions with management, the company notes limited extra order placements for stock build-up in 2Q25 due to concerns about US reciprocal tariffs. Ambient seafood has shown a firm low to mid-single digit y/y recovery in sales, with strong demand in key markets including Europe, US, and Thailand.
Petcare sales declined by a low to mid-single digit y/y. While we anticipate firm y/y volume growth in petcare, we expect lower average prices due to a shift towards a less premium product mix. Frozen seafood sales are projected to decline by a mid-to-high single digit y/y, impacted by continued soft demand.
Narrower EBIT margin. We anticipate 2Q25F gross margin of 18.9% (+40bps y/y, +10bps q/q), mostly supported by an improving gross margin for ambient seafood and a better overall revenue mix. The improving gross profit for ambient seafood was supported by increased volume alongside more favourable tuna raw material costs. Nevertheless, we anticipate a y/y decline in Petcare gross margin following the normalisation of the premium product mix (from 54% in 2Q24 to 47%-50% in 2Q25F), increases in the minimum wage, and other factors.
Still, we believe SG&A to sales would remain elevated in 2Q25F due to the ongoing transformation costs, lower leverage from soft sales, and active marketing campaigns. SG&A to sales is expected to rise by 90bps y/y to 13.9%. However, it has started normalising q/q with an improving sales base. Net-net, EBIT margin is expected to decrease by 80bps y/y to 5.5% in 2Q25F.
Expect y/y pressure on core profit margin. Associate income in 2Q25F is expected to grow 39.5% y/y after performance at its key associate improves. Interest expenses are expected to decline y/y after the global downturn in interest rates. Effective tax rate is expected to increase with the implementation of the Global Minimum Tax, although the company guided that the impact would be lower than previously expected (from 10%-15% to 10%-12.5% in 2025). Overall, we expect core profit margin of 3.5%, down 60bps y/y.
Outlook
Entering peak season in 2H25, but with uncertainty. We expect sales and core profit to improve q/q in 3Q25F, mostly due to seasonality with a more favourable THB against the USD, EUR, and GBP MTD, which should benefit the company. Nevertheless, we believe y/y growth will be limited due to a high gross margin base in 3Q24, with persistently high expenses and an increased effective tax rate. Nevertheless, we expect to see some benefits from the transformation project from 3Q25 onwards.
Another challenge for Thai Union is the 37% in US reciprocal tariffs on Thai products, which could significantly impact the company’s sales. In 2024, North America accounted for 39% of TU’s revenue, with both local production and imports from its ASEAN and Ghana plants. We note that the US production plant will likely be impacted by tariff due to its reliance on raw materials from Thailand. Per our estimates, every 1% decline in sales would lead to a c.2% downside to FY25F earnings.
End of share repurchase programme. Thai Union informed the Stock Exchange of Thailand (SET) that as of 30 June 2025 (the due date of the share repurchase project) the total number of shares repurchased under this programme was 400,038,900 shares, or 8.98% of the total paid-up capital, with a total payment of THB4.31bn (with average price of THB10.77).
Kindly note that this share repurchase programme covered the maximum share repurchase of 445mn (with total budget of THB5bn). If the company has fully reduced its paid-up capital shares with the repurchased shares, EPS and TP could increase by an annualised 9.9%.
Recommendation
Maintain HOLD with a lower TP of THB11.00, from THB12.50. We maintain our forecasts but cut our TP to THB11.00. Our TP is pegged to a 11.1x P/E (vs. 12.7x P/E), equivalent to -1.5SD of its five-year historical average, to reflect the rising global uncertainty and the company’s slow earnings recovery. Despite upside to our target price, we maintain our HOLD rating for TU given the ongoing headwinds.
| FY Dec | 1Q2024 | 4Q2024 | 1Q2025 | % chg y/y | % chg q/q |
|---|---|---|---|---|---|
| Revenue | 33,220 | 35,090 | 29,789 | (10.3) | (15.1) |
| Cost of Goods Sold | (27,478) | (28,537) | (24,177) | (12.0) | (15.3) |
| Gross Profit | 5,742 | 6,554 | 5,611 | (2.3) | (14.4) |
| Other Oper. (Exp)/Inc | (4,197) | (4,929) | (4,700) | 12.0 | (4.6) |
| Operating Profit | 1,545 | 1,625 | 911 | (41.0) | (43.9) |
| Other Non Opg (Exp)/Inc | 227 | 235 | 176 | (22.6) | (25.2) |
| Associates & JV Inc | 159 | 157 | 291 | 83.1 | 85.4 |
| Net Interest (Exp)/Inc | (647) | (598) | (585) | 9.5 | 2.1 |
| Exceptional Gain/(Loss) | 243 | 84.6 | 397 | 63.7 | 369.2 |
| Pre-tax Profit | 1,527 | 1,504 | 1,190 | (22.1) | (20.9) |
| Tax | (118) | (49.7) | 41.2 | (134.9) | (182.8) |
| Minority Interest | (256) | (241) | (212) | 17.2 | (12.2) |
| Net Profit | 1,153 | 1,213 | 1,019 | (11.6) | (16.0) |
| Net profit bef Except. | 911 | 1,128 | 622 | (31.7) | (44.9) |
| EBITDA | 2,998 | 3,117 | 2,414 | (19.5) | (22.5) |
| Margins | |||||
| Gross Margins (%) | 17.3 | 18.7 | 18.8 | ||
| Opg Profit Margins (%) | 4.7 | 4.6 | 3.1 | ||
| Net Profit Margins (%) | 3.5 | 3.5 | 3.4 |
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