Thai Union Group: Limited upside
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- Thai Union Group: Core 3Q25F closely at breakeven 24 Oct 2025
- Downgrade from BUY to HOLD with TP unchanged at THB13.90 due to limited upside potential
- 3Q25 core profit of THB1.20bn (-19% y/y) missed expectations, due to softer sales and elevated expenses
- Overall, y/y weaker performance was due to softer sales and lower operating margin, stemming from the emerging impact of US reciprocal tariffs
- Cut earnings by 8% for FY25/26F, reflecting a more conservative outlook for operating margins
Earnings review
Earnings contraction in 3Q25. TU posted 3Q25 core earnings of THB1.20bn (-19.1% y/y, -0.6% q/q). The results were 9% and 17% below consensus and our estimates, respectively. The key deviations in the results were due to lower-than-expected sales and persistently high expense levels during the period. The softer earnings were largely impacted by a lower gross profit margin and a spike in selling, general, and administrative (SG&A) expenses. For 3Q25, TU recorded a forex gain of THB107mn, resulting in a net profit of THB1.57bn (+12.0% y/y and +23.2% y/y).
Sales inched down due to stronger THB. TU recorded total revenue of THB34.50bn (-1.0% y/y), mainly pulled down by exchange rate impacts. Excluding the exchange rate impact, sales would have grown by 1.8% y/y in 3Q25. Ambient seafood sales registered -3.8% y/y growth, predominantly due to fx impact, lower original equipment manufacturer (OEM) demand in the US market, and a high base in the Middle East region in 3Q24.
Petcare sales increased by 6.2% y/y, driven by increasing volume in the US and European markets despite lower average prices. Frozen seafood posted a 5.1% y/y increase in sales, supported by positive momentum in the feed business and shrimp business in the US.
Gross margin softened. 3Q25 gross margin stood at 19.0% (-50bps y/y, -70bps q/q), reflecting mixed margin movements across various categories. Specifically, the gross margin for ambient seafood declined by 70bps y/y, primarily due to the impact of increased tariffs and higher tuna raw material prices (+9.9% y/y). The company’s inability to fully raise prices to offset this tariff impact is a contributing factor.
Petcare margins declined by 4.8ppt y/y, attributable to a high base in 3Q24 resulting from inventory adjustments, forex impact, and tariff support for certain customers in the US. Conversely, frozen seafood demonstrated strong gross margin improvement of 1.8ppt y/y, driven by lower raw material costs and a strong feed business.
SG&A expenses remained high. SG&A expenses as a percentage of sales remained high at 13.8% (+30bps y/y and -10bps q/q), despite lower transformation costs. On a y/y basis, SG&A as a percentage of sales increased due to continuous proactive marketing expenses.
Reduced other income and associate income partially offset by lower interest expenses. Other income declined by 7.6% y/y, largely due to lower interest income from its subsidiary. Meanwhile, associate income declined y/y, stemming from the weaker performance of Avanti. Nonetheless, interest expenses also declined by 5.1% y/y, attributable to a lower interest rate environment.
However, interest expenses increased q/q after the refinancing of a short-term loan to a Blue Loan. The effective tax rate was 11.5%, which is slightly lower than last year’s level of 12.1%. Overall, 3Q25 core profit margin was 3.5%, down 60bps y/y and 250bps q/q.
Outlook
Better momentum expected in 4Q25F. We anticipate the resumption of positive y/y sales growth in 4Q25F, where the weakening THB is expected to have a less negative impact on the company’s sales. Regarding organic sales, we foresee a continued recovery in volume in Europe, alongside the full quarterly impact of price increases in the US market, following the company’s attempts since 3Q25 to raise prices to compensate for the impact of the higher 19% tariff rate.
Gross margin improvement is projected to be supported by recovering sales volume and ongoing efficiency enhancement efforts, while tuna raw material prices are expected to remain largely stable from 3Q25. Nevertheless, we believe that core profit growth might be weaker q/q due to the peak seasonality typically observed in 3Q25.
Management revised down 2025 sales target. Thai Union has revised its 2025 sales growth target from -1% to -2% to -2% to -4%, primarily due to the impact of US reciprocal tariffs and a less favourable exchange rate. Meanwhile, the company has revised its SG&A expenses to sales range from 13.5%-14.5% to 13.5%-14.0%, while the management maintains other key guidance.
2026 outlook under scrutiny. Although the uncertainties surrounding US reciprocal tariffs have been resolved, and the current 19% tariff rate enables TU to remain competitive against its key rivals, we anticipate that rising product prices in the US market in 2026 could decelerate domestic consumption. It is noteworthy that c.40% of TU’s revenue is generated from the US market (including North America). Thus, we conservatively forecast a gradual earnings recovery of 8% in FY26F, despite a low base in FY25F.
Recommendation
Downgrade from BUY to HOLD with an unchanged TP of THB13.90. We cut our earnings forecast by 8% for FY25F/FY26F to reflect persistently higher-than-expected expense levels, lower associate income, and a more conservative gross profit margin in FY26F.
Nonetheless, we roll over our valuation to FY26F and derive our TP pegged to 13.5x FY26F P/E, which is equivalent to its five-year historical average and remains unchanged. With more limited upside to our TP and potential headwinds in the US market next year, we downgrade our call from BUY to HOLD.
FY Dec | 2Q2024 | 1Q2025 | 2Q2025 | % chg y/y | % chg q/q |
Revenue | 35,283 | 29,789 | 33,389 | (5.4) | 12.1 |
Cost of Goods Sold | (28,748) | (24,177) | (26,822) | (6.7) | 10.9 |
Gross Profit | 6,535 | 5,611 | 6,567 | 0.5 | 17.0 |
Other Oper. (Exp)/Inc | (4,582) | (4,700) | (4,639) | 1.2 | (1.3) |
Operating Profit | 1,953 | 911 | 1,927 | (1.3) | 111.6 |
Other Non Opg (Exp)/Inc | 256 | 176 | 159 | (37.9) | (9.4) |
Associates & JV Inc | 179 | 291 | 158 | (12.0) | (45.8) |
Net Interest (Exp)/Inc | (620) | (585) | (586) | 5.4 | (0.2) |
Exceptional Gain/(Loss) | (224) | 397 | 68.0 | nm | (82.9) |
Pre-tax Profit | 1,544 | 1,190 | 1,726 | 11.8 | 45.1 |
Tax | (44.2) | 41.2 | (209) | 373.5 | (608.8) |
Minority Interest | (281) | (212) | (244) | 13.2 | 15.3 |
Net Profit | 1,219 | 1,019 | 1,273 | 4.4 | 24.9 |
Net profit bef Except. | 1,443 | 622 | 1,205 | (16.5) | 93.6 |
EBITDA | 3,476 | 2,414 | 3,301 | (5.0) | 36.7 |
Margins (%) |
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Gross Margins | 18.5 | 18.8 | 19.7 |
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Opg Profit Margins | 5.5 | 3.1 | 5.8 |
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Net Profit Margins | 3.5 | 3.4 | 3.8 |
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- Thai Union Group: Remains cautiuos19 Feb 2026
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- Thai Union Group: Remains cautiuos19 Feb 2026
- Thai Union Group: Slow recovery for 4Q25F19 Jan 2026
- Thai Union Group: Core 3Q25F closely at breakeven 24 Oct 2025