• Expect 4Q18F core profit to come in at Bt1.54bn (-11% qoq, +15% yoy) driven by solid tuna and shrimp operations
• Core earnings will rise above Bt5.0bn baseline in 2019 due to more stable tuna prices; expect 14-15% GPM with US$1,500-1,800/ton tuna price
• Maintain NEUTRAL rating and Bt19 TP based on 16x FY19F PE, which is -0.5SD of its 7-year average multiple

Expect 4Q18F core profit to grow 15% yoy to Bt1.54bn

This would be led by solid tuna and shrimp operations. Sales should grow 3% yoy to Bt36.5bn supported by stable THB/USD rate, and high tuna and shrimp volumes. GPM should improve 3.2ppt yoy to 15% led by stronger-than-expected GPM for tuna unit (+3.3ppt yoy) due to lower tuna price at US$1,408/ton vs US$2,033/ton in 4Q17, and for shrimp unit (+1.6ppt yoy). SG&A/Sales should be under control at 9.9% (vs 9.5% in 4Q17). Equity income should remain negative at Bt113m vs Bt65m loss in 4Q17, dragged by RL and weaker Avanti operation. RL operation remains loss-making at c.Bt300m (vs Bt317m loss in 4Q17). The yoy improvement would be mainly due to a shorter winter season while performance for Avanti (shrimp feed business in India) would be weaker yoy to due to higher raw material cost (corn price).

Baseline core earnings to rise above Bt5.0bn in 2019 with 14-15% GPM target

Tuna price remained low at US$1,300/ton in December after high US$1,800 in 2018. However, current prices would be not sustainable. TU affirmed it can deliver 14-15% GPM for the group at S$1,500-1,800/ton tuna prices. Salmon unit should improve after divestment of the UK unit (c.1% of total sales) which should contribute c.Bt200m loss in FY18F. Shrimp unit will recover led by rising global supply, supported by diversification away from the US market. Thai shrimp association expects shrimp production to grow 7% yoy to 310k tons in FY19. We keep FY19F core profit at Bt5.5bn, with 14.6% GPM. We see upside to earnings given the favorable environment, e.g. weaker baht and tuna price below US$1,500/ton.

NEUTRAL, Bt19/sh TP; positive near-term sentiment but demanding valuations compared to peers’

Our TP is pegged to 16x FY19F PE, or at -0.5SD of its historical 7-year mean multiple. Near-term sentiment could be driven by solid 4Q18F results and green light for Thailand’s fishery industry after IUU allegations. This will not affect near-term operations. TU’s PE multiples are 7-12% higher than peers’ and we recommend to wait for share price to pull back to below Bt16/sh, the level to be on par with peers’.