Thai Union Group: Time to look ahead
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- 2Q25 profit weighed down by soft sales and rising SG&A expenses despite a record-high GPM
- 2H25 performance to show firmer recovery; healthy GPM persists from favourable raw material costs and better product mix
- 19% US reciprocal tariff should enable TU to maintain its competitiveness over key competitors in other regions
- Upgrade to BUY with a higher TP of THB13.90 on more upbeat momentum
Earnings review
2Q25 core performance weak, as expected. TU posted a 2Q25 core profit of THB1.21bn (-16.5% y/y, +93.6% q/q), in line with both our estimates and the consensus. The firm recovery q/q was driven by seasonality and more favourable tuna costs as well as a more favourable exchange rate.
On a y/y basis, performance was weighed down by soft sales (mainly hit by the strong THB against key currencies) and rising expenses related to transformation costs and marketing expenses, which outpaced record-high gross margin in the quarter. Additionally, earnings growth was dragged by the spike in effective tax rate from the implementation of the Global Minimum Tax. In 2Q25, TU recorded a forex gain of THB68mn, resulting in a net profit of THB1.27bn (+4.4% y/y, +24.9% q/q).
Strong THB weighed down sales. TU registered a total revenue of THB33.4bn in 2Q25 (-5.4% y/y). Stripping out forex impact, local currency sales only inched down 0.7% y/y, no thanks to the softer frozen seafood sales following weak demand in the US market. Ambient seafood sales declined organically after lower tuna raw material prices, partially offset by some extra order placements for stock build-up in 2Q25 over concerns on the US reciprocal tariffs. Petcare sales declined y/y on translation impact and lower average selling prices.
Record-high gross margin. 2Q25’s gross margin hit a recorded high of 19.7% (+110bps y/y, +80bps 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, more favourable tuna costs and a higher mix of branded product sales.
Frozen seafood gross margin also showed a firm expansion following more favourable key raw material costs. Nevertheless, petcare gross margin decreased y/y following the normalisation of the premium product mix, increase in minimum wage, and higher depreciation.
High SG&A expense level persists. SG&A-to-sales remained elevated in 2Q25 due to ongoing transformation costs, lower leverage from soft sales, and active marketing campaigns. SG&A-to-sales rose 90bps y/y to 13.9%. However, it has started normalising q/q with an improving sales base. Net-net, EBIT margin was mostly stable y/y at 6.2% in 2Q25.
Rising tax expenses also hurt bottomline. In 2Q25, TU posted an associate income that was 12% lower y/y after weaker performance at its key associate. Yet, interest expenses dropped 5% y/y after a global downturn in interest rates. Effective tax rate, on the other hand, increased with the implementation of the Global Minimum Tax from 2.8% in 2Q24 to 14.0% in 2Q25. Overall, we saw core profit margin come down from 4.1% in 2Q25 to 3.6% in 2Q25.
2025 target revised. TU revised its guidance in 2025 per the following: (i) Cut sales growth target from 1-3% to -1% to -2% after the US Reciprocal Tariff settled at 19%; (ii) increased GPM target to 18.5-19.5% (18.0-19.0% previously); and (iii) increased capex budget to THB3.5-4bn (previously THB3-3.5bn).
Interim DPS of THB0.35 announced for 1H25. TU announced a DPS of THB0.35 for its operating period from 1 Jan-30 Jun 2025 – implying a dividend yield of 5.9% (annualised basis). The Ex-dividend date is to be 5 August 2025 with payment date on 1 September 2025.
Outlook
Mitsubishi to launch general tender offer on TU shares. Mitsubishi Corporation (MC) is seeking to deepen its strategic alignment with Thai Union as well as trying to rationalise its investment portfolio. Thus, MC aims to entice the general public into buying more TU shares. It currently holds a 6.19% stake (excluding treasury shares) and proposes to acquire an additional 13.81%, reaching a 20.00% holding.
The offer is priced at THB12.50/share. No further acquisitions are planned beyond this threshold. As the proposed stake remains below 25% of voting rights, the offer does not qualify as a regulated tender under the Thai securities law.
TU’s management believes this general tender offer would likely be completed, and the company and TU could explore business opportunities across several markets. MC has invested in TU since 1991 and was one of TU’s Top 5 customers in 2024.
Entering peak season in 2H25. We expect sales and core profit to improve q/q in 3Q25F, mostly due to seasonality with a more favourable THB against the EUR and GBP, which should benefit company sales. Meanwhile, we should continue seeing a healthy gross margin range following raw material prices (including tuna) persisting, along with better product mix from the branded ambient seafood business (given the company’s effort to invest more in the branded business) and growth acceleration of the petcare business throughout 2025.
Furthermore, we expect the SG&A-to-sales ratio to decline in 2H25 vs. 1H25 due to better sales leverage as well as more benefits from Project Sonar and Project Tailwinds coming in 2H25 onwards. Finance costs should remain favourable compared to last year. Nevertheless, we believe y/y growth might be weighed down, mainly on an increased effective tax rate in 2H25.
US reciprocal tariff issues abating. The US reciprocal tariffs on Thai products have settled at 19%. Despite the increase from the previous rate of 10%, management believes the increased rate should not hinder TU from having competitiveness in each business segment over key competitors from other regions. The company also has the capability to diversify its production to other facilities which have more favourable US reciprocal tariff rate – i.e. Seychelles and Ghana – if needed.
Nonetheless, we note that we may have some uncertainties on the slowdown of US consumption over the short- to medium-term after the US reciprocal tariff pushed product prices in the US market. In 2024, North America accounted for 38% of TU’s revenue, with both local production and imports from its ASEAN and Ghana plants.
Currently, we assume sales growth to contract 4.6% y/y in FY25F, more conservative compared to management’s latest guidance of -1% to -2%. We have also performed a sensitivity analysis on sales and concluded that every 1% decline in sales would lead to a c.2% downside to FY25F earnings.
End of share repurchase programme (Programme 4). TU 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, 8.98% of the total paid-up capital, with a total payment of THB4.31bn (average price of THB10.77).
Kindly note that this share repurchase programme covered the maximum share repurchase of 445mn (with a total budget of THB5bn). If the company has fully reduced its paid-up capital shares with repurchased shares, EPS and TP could increase by an annualised 9.9%.
In the analyst meeting, management highlighted that the company aims to use all repurchased shares to reduce registered capital (including Programme 2 in 2023 and Programme 3 in 2024 in which the company bought back 200mn shares). Hence, this could be another positive factor in the mid-term.
Recommendation
Upgrade from HOLD to BUY with a higher TP of THB13.90. We finetune our earnings forecast and revise up our FY25F earnings by 4%, mainly after raising gross margin from 18.7% to 18.9% (vs. management’s latest guidance of 18.5-19.5%) based on a strong 1H25 GPM and positive momentum. We have also cut our finance costs assumption in FY25F after lower-than-expected finance costs in 1H25. Nonetheless, we are still conservative on sales growth assumption in FY25F with a 4.6% sales contraction (vs. -1% to -2% as guided by management).
Given firmer recovery expected from 2H25 with relieving concerns on US reciprocal tariffs, we derive our new TP pegged to a 13.5x P/E (vs. 11.1x P/E), equivalent to its five-year historical average. With a higher upside to our TP, we upgrade our call from HOLD to BUY.
Quarterly / Interim Income Statement (THBmn)
FY Dec (Btm) | 1Q24 | 2Q24 | 3Q24 | 4Q24 | 1Q25 | 2Q25 | Chg. | Chg. | |
yoy | qoq | ||||||||
Sales | 33,220 | 35,283 | 34,840 | 35,090 | 29,789 | 33,389 | -5.4% | 12.1% | |
Cost of Goods Sold | (27,478) | (28,748) | (28,047) | (28,537) | (24,177) | (26,822) | -6.7% | 10.9% | |
Gross Profit | 5,742 | 6,535 | 6,793 | 6,554 | 5,611 | 6,567 | 0.5% | 17.0% | |
SG&A exp. | (4,197) | (4,582) | (4,693) | (4,929) | (4,700) | (4,639) | 1.2% | -1.3% | |
Operating profit | 1,545 | 1,953 | 2,100 | 1,625 | 911 | 1,927 | -1.3% | 111.6% | |
Other income | 227 | 256 | 252 | 235 | 176 | 159 | -37.9% | -9.4% | |
EBIT | 1,772 | 2,209 | 2,351 | 1,860 | 1,087 | 2,087 | -5.5% | 92.0% | |
Associate inc. | 159 | 179 | 275 | 157 | 291 | 158 | -12.0% | -45.8% | |
Interest exp. | (647) | (620) | (627) | (598) | (585) | (586) | -5.4% | 0.2% | |
Pretax Profit | 1,284 | 1,768 | 1,999 | 1,419 | 792 | 1,658 | -6.2% | 109.2% | |
Tax | (118) | (44) | (208) | (50) | 41 | (209) | 373.5% | -609% | |
Minority Int. | (256) | (281) | (311) | (241) | (212) | (244) | -13.2% | 15.3% | |
Norm Profit | 911 | 1,443 | 1,480 | 1,128 | 622 | 1,205 | -16.5% | 93.6% | |
Extra items | 243 | (224) | (80) | 85 | 397 | 68 | -130.3% | -82.9% | |
Net Profit | 1,153 | 1,219 | 1,400 | 1,213 | 1,019 | 1,273 | 4.4% | 24.9% | |
Margins (%) | |||||||||
Gross Margin | 17.3% | 18.5% | 19.5% | 18.7% | 18.8% | 19.7% | 1.1 | 0.8 | |
SGA % Sales | 12.6% | 13.0% | 13.5% | 14.0% | 15.8% | 13.9% | 0.9 | (1.9) | |
EBIT Margin | 5.3% | 6.3% | 6.7% | 5.3% | 3.6% | 6.2% | (0.0) | 2.6 | |
Core Net Margin | 2.7% | 4.1% | 4.2% | 3.2% | 2.1% | 3.6% | (0.5) | 1.5 | |
Net Margin | 3.5% | 3.5% | 4.0% | 3.5% | 3.4% | 3.8% | 0.4 | 0.4 | |
Effective tax rate | -10.5% | -2.8% | -12.1% | -3.9% | 8.2% | -14.0% | (11.2) | (22.2) |
Source: Company, DBSVTH
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