2Q21 results – beat; earnings and TP raised

TU 2Q21 core profit was Bt2,445 mn, up 41% YoY and 20% QoQ, well above the market expectation and our Bt1.9-2 bn preview.

The robust performance in Frozen seafood and PetCare & value added led to the positive surprise on the sales growth and gross margin. Sales rose 9% YoY, accelerating from 0-2% in 4Q20-1Q21. Gross margin also reached a record high 19%. The significant demand recovery in the US, a strong pet food demand and lower conversion cost were the drivers. The SG&A-to- sales ratio was well controlled, while Red Lobster performed slightly better-than expected.

For 2021 guidance, TU revised up its gross margin to 17-18% (from 17%) and cut CAPEX to Bt5 bn (from Bt6-6.5 bn) in light of strong YTD performance and COVID-19. Sales growth and SG&A-to-sales ratio guidance was maintained at 3-5% and 11-12%, respectively.

We raise EPS 4-5% in 2021-22 and TP to Bt25.5. Despite some moderation in 2H21, we expect some cost saving and higher mix of pet food to allow TU to deliver an enhanced margin base and earnings quality beyond the pandemic. This warrants a rerating, in our view.