JP Morgan has a bullish view on Thai Union Group, following the analyst meeting after the company announced its growth in the first quarter earnings, but noted that concerns over Red Lobster may not be entirely over.
The research analyst report from JP Morgan on Thai Union Group Public Company Limited (SET: TU) highlighted several key points from the analyst meeting:
Beneficiary of THB weakness: TU is seen as a beneficiary of the weakness of the Thai Baht (THB) which has depreciated significantly. This could potentially lead to upside risk to sales growth guidance in FY24.
Positive margin trend into 2Q24: TU is expected to experience a positive margin trend in the second quarter of 2024, thanks to the favorable movement in tuna prices. The company anticipates an expansion in gross profit margin (GPM) due to the supportive tuna price environment.
Red Lobster concerns not entirely resolved: Despite TU’s exit from Red Lobster resulting in a full impairment of US$530 million, there are still lingering concerns in the market regarding Red Lobster as many analysts have raised questions regarding the matter in the meeting. JP Morgan noted that any progress in the divestment of Red Lobster could serve as an upside catalyst for the stock, while management reaffirmed that Red Lobster will no longer have an impact on its bottom line in any situation.
Overall, JP Morgan recommends an Overweight (OW) rating on TU stock, with potential upside risks to sales guidance from the weaker THB and the supportive tuna price environment. The market’s focus on Red Lobster divestment progress indicates that it remains a key factor for the stock’s performance.
