TUF Buys 50% Stake In China’s Century Unionff

In a bid to tap into China's robust economic growth and huge population, Thai Union Frozen Products Plc (TUF), the country's largest processor and exporter of canned and frozen seafood, is investing US$4 million (155 million baht) for a 50% stake of Century Union (Shanghai) Foods Co.

The acquisition, which is expected to be completed in May, would be made through a wholly owned subsidiary, Thai Union Manufacturing Co, according to a TUF spokeswoman.

”China has now developed into one of the global economic powers. This investment allows Thai Union to promote its brands and establish a distribution network throughout the China market,” she said.

Century Union (Shanghai) Foods, which markets FMCG products, currently has registered capital of $8 million with $2.5 million paid up.

Captivated by China's rapid economic expansion and increasingly rich consumers, TUF has over the last two years tried to gain greater access to the Chinese market.

In 2003 it set up a market research firm in Shanghai and acquired 50% of the shares in Cindena Resources Limited, the distributor of Century canned fish in the local market. The two investments cost $450,000 in total.

But the spokeswoman said that despite the presence of two affiliates, TUF still struggled to export its tuna products to Chinese consumers, thus forcing it to invest in the local tuna firm.

She said TUF expected its new joint venture would generate sales revenues of 50 million baht this year and 250 million baht next year.

China currently accounts for a very slim portion of TUF’s annual turnover, partially because of China's tuna import tariffs which are relatively as high as 30%, thus curbing the competitiveness of Thailand's tuna business there.

Currently, TUF has tuna production capacity of 700 to 800 tons per day. It exported tuna products totaling 93,400 tons last year.

The United States is currently the largest market for TUF, accounting for 60% of the company's annual sales, followed by Japan (13%) and Europe (7%). Asia, excluding Japan, makes up only 3% while the domestic market accounts for 8%.

Canned and frozen tuna products account for 64% of TUF’s sales volume.

Suttatip Peerasub, an analyst at Kim Eng Securities, said the outlook was positive for TUF this year given the better performance of tuna business and substantial growth of its shrimp operations.

Kim Eng forecast TUF’s 2005 net profit would increase by 11% to 2.16 billion baht, based on a foreign-exchange rate of 38 baht to the US dollar, on total sales worth 50.875 billion baht, a rise from 40.33 billion in 2004.

The relatively weaker US dollar against baht will affect TUF’s performance as 92% of its total revenues are in dollar terms in 2004, compared with 77% of its total costs and expenses. However, the company should remain competitive as all regional currencies have also appreciated against the US dollar, she said.

TUF shares closed yesterday on the Stock Exchange of Thailand at 25.50 baht, down 50 satang, in trade worth 2.19 million baht.