taokaenoi food marketing food & marketing (16e tp bt5.43) ipo ... in 2014, the thai snack...

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Taokaenoi Food & Marketing (16E TP Bt5.43)

IPO Price Bt4.00

Food & Beverage December 3, 2015

A leading producer of processed seaweed with strong branding

Share data

Reuters / Bloomberg TKN.BK / TKN TB

Market SET

Post‐IPO Paid‐up Shares (m) 1380

Pre‐IPO Paid‐up Shares (m) 1020

Par (Bt) 0.25

Dividend Policy Not less than 40% of net profit

IPO Summary

No. of IPO shares (mn shares) 360

IPO price (Bt) 4.00

First trading day 3 Nov 15

Lead Underwriter ASP

Financial Advisor ASPA

Major Shareholders Pre‐IPO Post‐IPO

Peeradechapan holding Co.,Ltd. 35% 26%

Mr. Itthipat 45% 33%

Mr.Nutchatpong 10% 7%

Mrs. Orrapat 10% 7%

IPO 0% 26%

Purpose of fundraising

To expand build a new plant in Rojana Industrial

Park, investment in a new production line and

raise working capital to support future growth.

Note

KT ZMICO is a co underwriter of the IPO of TKN.

Phornsri Laysanitsaerekul

Analyst , no 17621

[email protected]

66 (0) 2624‐6258

“TAO KAE NOI”, strong Thai brand to become Asian and global brand TKN is a leader in the seaweed snack market, with the largest market share of 62%. Being widely recognized by Chinese customers, TKN has seen its exports grow very well. We expect the firm’s earnings to achieve a 41% CAGR and 2016E fair value of Bt5.43/share (2016E PER of 18x). Leading seaweed snack producer gearing up to become Asian and global brand TKN is a leading producer of processed seaweed products under its trademark “TAO KAE NOI”. With this outstanding and well‐recognized trademark, TKN holds the largest market share of 62% in the Thai processed seaweed market. The firm’s revenue breakdown between domestic sales and exports is 57%:43%. Its products have high demand in some overseas markets (mainly China, Malaysia and Indonesia). Seeing good prospects for potential overseas expansion, TKN is gearing to expand its production capacity to serve expected growth in the future. The management expects to lead its brand to become an Asian brand by 2018 and a global brand by 2024. Three‐year earnings to achieve a 41% CAGR We expect TKN’s three‐year core earnings to achieve a 41% CAGR, from Bt199mn in 2014 to Bt492mn in 2017. We project sales growth of 17% p.a., driven by production capacity increases, potential expansion to overseas markets and an expected increase in the exposure to export revenue from 43% in 2014 to 50‐51% in 2015‐17. 2016E fair value estimated at Bt5.43/share We estimate a 2016E fair value for TKN at Bt5.43/share, based on 18X PER of 2016E EPS (fully diluted) vs. the average PER of 18x for the agro sector at 19.16X and the average PER of 19.36x for the food sector. Financials and Valuation

FY Ended 31 Dec 2013 2014 2015E 2016E 2017E

Revenues (Btm) 2,716 2,695 3,371 3,876 4,360

Net profit (Btm) 128 199 337 416 492

EPS (Bt) 0.20 0.19 0.24 0.30 0.36

Norm. EPS (Bt) 0.20 0.17 0.24 0.30 0.36

Norm. EPS growth (%) 103% ‐14% 41% 23% 18%

Dividend (Bt) 0.20 0.38 0.18 0.12 0.14

BV (Bt) 0.40 0.35 1.32 1.59 1.83

FY Ended 31 Dec 2013 2014 2015E 2016E 2017E

PER (x) 19.95 20.54 16.38 13.27 11.22

EV/EBITDA (x) 11.03 13.68 9.36 7.82 6.54

PBV (x) 9.97 11.57 3.04 2.51 2.19

Dividend yield (%) 4.88% 9.50% 4.55% 3.01% 3.56%

ROE (%) 50.9% 65.2% 31.0% 20.7% 20.8%

Net gearing (%) 146.7 99.8 cash cash cash

IPO Report


Valuations 2016E fair value estimated at Bt5.43/share We estimate a 2016E fair value for TKN at Bt5.43/share, based on 18X PER of 2016E EPS (fully diluted) vs. the average PER of 18x for the agro sector at 19.16X and the average PER of 19.36x for the food sector. A leader in the processed seaweed market, gearing up to become an Asian and global brand in the next 5‐10 years TKN is a leading manufacturer of processed seaweed snack products under its trademark “TAO KAE NOI”. With this outstanding and well‐recognized trademark, TKN holds the largest market share of 62% in the Thai processed seaweed market. The firm’s revenue breakdown between domestic sales and exports is 57%:43%. Its products have high demand in some overseas markets (mainly China, Malaysia and Indonesia). Seeing good prospects for potential overseas expansion, TKN is gearing to expand its production capacity to serve expected growth in the future. The management expects to lead its brand to become an Asian brand by 2018, with a sales target of Bt5bn, before pursuing global brand status by 2024, with a sales target of Bt10bn. We project TKN’s sales growth at 17% p.a., core profit growth of 41% p.a. and dividend yields of around 3.0‐3.6% during 2014‐2017E . Continuing to launch new products TKN has continued to carry on research and development for new products in a bid to meet customers’ demand and broaden its customer base amid the changing consumer behavior and circumstances. In 2012 – 14, the firm developed 19, 16, and 19 new products, respectively. New business expansion under the model “From Sea to Farm” TKN has a plan to expand its business by adding production lines in addition to the seaweed‐based product line. To elaborate, the firm has expanded its production line to agricultural crop‐based products, such as popcorn snacks that have continued to see high sales growth since 2012. In 2012 – 14, the sales of popcorn grew by 12%, 69% and 43%, respectively. TKN started to produce and sell popcorn snacks in 2014, adding more variety to the firm’s products and offering more choices to attract consumers to choose a more healthy diet.

Industry Outlook Overview of the snack industry in Thailand The fact that the Thai snack industry has continued to increase has attracted a number of operators to expand their market shares through various strategies, including development of new products or the addition of more flavors. The major customer target groups include children and teenagers who like to try new products. Snack products in Thailand can be categorized into nine types: 1. Extruded snacks: These products are made of various kinds of flour, such as rice flour,

glutinous rice flour, cassava starch, corn starch, and seasoned by other ingredients, e.g., sauce, seaweed, etc. Leading extruded snack brands in the Thai market include Cornne, Snack Jack, Tawan, Jax and Paprika.

2. Potato Chips: Fried potato chips coming with various flavors, such as original flavor, barbeque flavor, etc. Leading brands include Lay’s, Testo, Pringle, and Lay’s Stax.

3. Seasoned seaweed: Fried, grilled, and roasted seasoned seaweed snacks coming with different flavors. Leading brands include Tao Kae Noi, Masita, Seleco, Tawandaeng and Onori.

4. Nuts: Nut snacks include seasoned peanuts, sugar peas, cashew nuts, and almonds. Leading brands in the market are Koh Kae, Thong Garden, Double Pagoda, Green Nut and Nut Walker.

5. Fish snacks: Fish snack is a kind of roasted fish seasoned by different flavors. Leading brands are Taro, Fisho, Bento, TenJang and Taro Crispy.

6. Prawn crackers: This is a kind of flour snack seasoned by prawn flavor. Some leading brands are Hanami, Calbee and Manora.


7. Cuttlefish: This is a cuttlefish snack seasoned with different flavors. Leading brands are Bento, Tao thong, Squidy and Fisho Twist.

8. Rice crackers: This is a kind of rice cracker snack seasoned with different flavors. The leading brands at present are Dozo and Shinmai.

9. Popcorn: The product includes popcorn snacks in different flavors, such as butter, coffee, and caramel. Some leading brands are Toro, Tao Kae Pop, Popcorn New York, Party and Poppyrock.

Figure 1: Total value sales for Thai snack market

Source: AC Nielsen, prospectus of TKN

In 2014, the Thai snack business had a market value of Bt29,144mn, down by 2.4%YoY. Popcorn products saw the largest sales value in 2014 as a number of new players entered the market, introducing newly developed products that came with different flavors and forms. Positive responses to new products mean that consumers are willing to try and accept new products.

Thai seasoned seaweed market The market value of the Thai seasoned seaweed market dropped by 16%YoY in 2014 to Bt2.35bn (vs. Bt2.8bn p.a. during 2012‐13). The decline was caused by the impacts of the economic slowdown as well as political instability that lowered the number of tourists.

Figure 2: Market values of seasoned seaweed industry Import volume and values of seaweed in 2006-2013

Source: AC Nielsen, Prospectus of TKN


Fried seasoned seaweed has the largest share of 65% of total market sales There are four types of seasoned seaweed snack products available in Thailand: fried seasoned seaweed, grilled seasoned seaweed, roasted seasoned seaweed and tempura‐seasoned seaweed. Fried seasoned seaweed products have the biggest share of 65% of total sales, followed by grilled and roasted products at 34% and tempura‐seasoned products 1%.

Figure 3: TKN shares 62% of total market value Six brands of seasoned seaweed products are available in Thailand

Trademark Market Share (%)

Tao Kae Noi 62%

Masita 14%

Seleco 7%

Tawandang 4%

Teelek 1%

Onori <1%


In recent years, several companies have imported seaweed to distribute in Thailand. They have strong potential in terms of the capital base and they sell their products through different channels. The major rival brands to TKN include “Masita”, “Onori” and “Seleco”, whose combined market share stands at 22%, far behind the share of 62% held by TKN. The high market share for TKN reflects its dominant position in the market thanks to its well‐known brand and good taste preferred by customers. The firm’s history and founder are also interesting. With its products sold through all the major distribution channels including supermarkets/hypermarkets, convenience stores and conventional stores, TKN’s products have been able to gain the largest market shares in all market channels.

Figure 4: Distribution channels



Earnings performance and outlook

Strong export sales growth drove core profit growth to 67% CAGR during 2012‐14 During 2012‐14, TKN’s sales grew at an average of only 4% p.a.. The sales expanded by 9% from Bt2.5bn in 2012 to Bt2.72bn in 2013 before falling by 1% to Bt2.69bn in 2014. The revenue breakdown was revenue from processed seaweed at 95% and from other products at 5%. The exposure to export revenue expanded from 32% of total sales in 2012 to 43% in 2014, driven by export growth of 21% p.a. The export value grew by 33% from Bt790mn in 2012 to Bt1.05bn in 2013 before growing further by 10% to Bt1.16bn in 2014. The jumps in export growth were seen from exports to China where sales growth soared by 242% p.a. (from Bt27mn in 2012 to Bt312mn in 2014); to Malaysia where sales expanded by 33% (from Bt101mn in 2012 to Bt180mn in 2014); and to Hong Kong with sales growth of 11% p.a. (from Bt89mn in 2012 to Bt109mn in 2014). This suggests TKN’s seasoned seaweed products see high demand mainly from Chinese customers (the brand logo clearly suggests that Chinese customers are the target group). TKN’s major customers are Chinese (12% of total sales in 2014), Malaysian (7%) and Indonesian (6%).

Figure 5: Revenue breakdown both from domestic and export markets

Source: AC Nielsen, Prospectus of TKN The gross profit margin improved from 28.3% in 2012 to 34.3% in 2013 and 34% in 2014 on the back of better raw material cost control (i.e., the firm was more successful at negotiating the prices of seaweed and palm oil with its trade partners) as well as better production efficiency. Meanwhile, SG&A to sales increased from 23% in 2012 to 28% in 2013 (due to the listing fee charges for launches of new products and promotional campaigns aimed at boosting sales). SG&A to sales then dropped to 25% in 2014 as expenses related to promotional campaigns declined. This, combined with other revenue, interest expenses and tax expanses, caused the firm’s core profit to grow at an average of 67% p.a. during 2012 to 2014. Its core revenue jumped by 104% from Bt63mn in 2012 to Bt128mn in 2013 before rising further by 37% to Bt176mn in 2014. The core profit growth, coupled with extra gains (forex gain, compensation for the damage caused by flooding and compensation for export tax) drove the firm’s net profit to grow by an average of 38% p.a. from Bt105mn in 2012 to Bt199mn in 2014. 9M15 NP soared by 128%YoY to Bt245mn TKN posted a net profit of Bt245mn in 9M15, up by 128%YoY, driven by sales growth of 35% to Bt2.52bn. The gross profit margin widened to 35.2% from 32.8% in 9M14. For 3Q15, the earnings jumped by 186%YoY and 59%QoQ to Bt119mn on the back of: i) solid sales growth of 52%YoY and 24%QoQ due to high seasonality; and ii) a drop of SG&A to sales to 19.6% (vs. 26.2% in 3Q14 and 36% in 2Q15) thanks to larger export sales. Meanwhile, a gross profit margin stood at 34.6% (vs. 34.2% in 3Q14 and 36% in 2Q15). The solid gross profit margin was driven by larger export sales and lower production costs per unit thanks to better production efficiency and the benefit from depreciation of the baht. Note that the 9M15 net profit accounts for 73% of our 2015 forecast.


Figure 6: 3Q15 and 9M15 earnings performance

Source: TKN, KTZ Research

Three‐year sales to achieve a 17%CAGR; to boost capacity for export expansion We expect TKN’s sales to achieve a 17% CAGR from Bt2.69bn in 2014 to Bt3.37bn/Bt3.88bn/Bt4.36bn in 2015/16/17. The sales growth should be driven by the positive outcome from the upgrade of the firm’s production machinery and the capacity expansion of the existing plant by around 8% in 2015. In addition, the firm will build a new plant at Rojana Industrial Estate to support export growth. The planned capacity expansion should continue to raise the firm’s capacity almost 100% in 2016‐17. Furthermore, the firm will also expand its export markets in a bid to become a leader in the snack market in Asia by 2018 before pursuing global snack brand status by 2024. Hence, we expect revenue from exports to rise from 43% of total revenue in 2014 to 50% in 2015‐16E before rising to 51% in 2017E. In the meantime, the firm will also maintain its domestic market share at 60%, with domestic sales accounting for 49‐50% of the total sales in 2015‐17E. Three‐year earnings to achieve a 41% CAGR Our forecasts call for TKN’s core profit to grow by 91% to Bt337mn in 2015 and grow further by 23% and 18% to Bt416mn and Bt492mn in 2016 and 2017, respectively. Hence, TKN’s three‐year core earnings are expected to achieve a 41% CAGR. Key earnings drivers are likely to include: i) an expected increase in sales following the management’s capacity expansion plans to serve domestic growth as well as export market expansion; and ii) more effective management both in terms of negotiating for raw materials and production efficiency. We thus expect TKN’s gross profit margin to widen from 34% in 2014 to 35% in 2015E and remain stable at 34.5% in 2016‐17E after the new plants commence operation. In addition, we expect the firm’s SG&A to sales to drop to 22‐22.5% in 2015‐17E from 25% in 2014. We also assume that the effective tax rate will fall thanks to a tax privilege offered to the new plant. All these reasons prompt us to believe that TKN’s three‐year earnings will achieve a 41% CAGR. However, with a 35% increase in total shares post‐IPO, the firm’s three‐year core EPS is projected to grow by 27% p.a., i.e., from Bt0.19 in 2014 to Bt0.24/Bt0.30/Bt0.36 in 2015/16/17, equivalent to projected EPS growth rates of 41%/23%/18% in the respective years. Finally, we expect the firm’s profit margin to improve from 7.4% in 2014 to 10% in 2015, 10.7% in 2016 and 11.3% in 2017.

Strong financial position with net cash TKN’s financial position is getting stronger. Post‐IPO, the firm is expected to enjoy a net cash position. With a net D/E ratio of 0.78x as of the end of 3Q15, the firm should see net cash from 2015 onwards. Meanwhile, equity is expected to increase from Bt353mn as of the end of 2014 to Bt1.82mn as of the end of 2015 and Bt2.19/2.52mn as of the ends of 2016‐17, translating

(Bt m) 3Q14 2Q15 3Q15 % YoY %QoQ 9M14 9M15 % YoY 2014 2015E % YoY YTD (% of 2015E)

Sales 664 815 1,008 51.8% 23.7% 1,861 2,519 35.4% 2,695 3,371 25.1% 74.7%

COGS ‐437 ‐520 ‐659 50.8% 26.7% ‐1,250 ‐1,633 30.7% ‐1,779 ‐2,191 23.2% 74.5%

Gross profit 227 294 349 53.6% 18.4% 611 886 45.0% 916 1,180 28.7% 75.1%

SG&A expense ‐174 ‐197 ‐197 13.2% 0.4% ‐485 ‐572 18.0% ‐673 ‐758 12.6% 75.5%

Others income 6 3 1 ‐74.1% ‐53.7% 27 10 ‐62.7% 9 15 67.0% 67.2%

EBIT 58 101 153 162.2% 51.3% 153 323 111.5% 252 436 73.2% 74.1%

Interest expense ‐5 ‐5 ‐4 ‐33.0% ‐27.7% ‐15 ‐13 ‐13.1% ‐20 ‐15 ‐23.4% 85.2%

EBT 53 96 149 181.5% 55.3% 138 311 124.8% 232 421 81.3% 73.7%

Tax expense ‐12 ‐21 ‐31 159.2% 45.0% ‐31 ‐66 112.8% ‐56 ‐84 50.1% 78.2%

Equity income 0 0 0 nm nm 0 0 nm 0 0 nm nm

MI 0 0 0 nm nm 0 0 nm 0 0 nm nm

Norm. profit 41 75 119 187.9% 58.2% 107 245 128.2% 176 337 91.3% 72.6%

Extra. Items 0 0 0 nm nm 0 0 nm 22 0 nm nm

Net profit 42 75 119 186.1% 58.7% 108 245 127.7% 199 337 69.7% 72.8%

EPS (Bt) 0.06 0.07 0.12 79.5% 58.7% 0.11 0.24 127.7% 0.19 0.24 25.4% 98.4%

Gross margin 34.2% 36.1% 34.6% 32.8% 35.2% 34.0% 35.0%

EBIT margin 8.8% 12.4% 15.2% 8.2% 12.8% 9.3% 12.9%

Norm. profit margin 6.2% 9.2% 11.8% 5.8% 9.7% 6.5% 10.0%

Net margin 6.3% 9.2% 11.8% 5.8% 9.7% 7.4% 10.0%


into a book value of Bt0.35 as of the end of 2014 to Bt1.32/Bt1.59/Bt1.82 per share as of the ends of 2015/16/17. Expect a dividend yield of 3.0% ‐ 3.6% in 2016‐17 With a strong financial position, net cash and bright earnings growth prospects, TKN is expected to pay dividends at Bt0.12/Bt0.14 per share for 2016E/17E performance, under an assumed payout ratio of 40%. There are equivalent to dividend yields of around 3.0‐3.6% in 2016‐17E. Regarding 2015E performance, we expect the firm to offer DPS of Bt0.03 for 4Q15 performance, assuming a payout ratio of 40%. Finally, it should be noted that TKN paid interim dividends amounting to Bt214mn for 9M15 performance before the IPO, representing a payout ratio of 87.4% for the period.

Future Projects

TKN has plans to increase capacity by building a new plant in Rojana Industrial Park; moreover, it plans to renovate the building and upgrade the production equipment at the existing plant, with the details as follows: 1) The new plant at Rojana Industrial Park: TKN has acquired about 19 rai of land for a new

plant at Rojana Industrial Park, Sambundit Sub‐district, Uthai District, Ayutthaya. The new plant will enable the firm to raise its capacity to support the firm’s growth target in the next 3‐5 years as well as enhance production efficiency. The construction is expected to take approximately 13 months, with a capex of Bt578mn. The new plant is anticipated to commence operation by 2016.

2) Renovation at existing Noppawong plant: TKN plans to upgrade production machinery and expand its capacity at its existing Noppawong plant, with a capex of Bt1.2bn. The upgrade of machinery for production of the fried seaweed product line, which is expected to be completed in 4Q15, is likely to help the firm reduce production costs by 0.6% of total production costs. Moreover, TKN will also spend Bt70mn on renovation of its warehouse building (i.e., transforming it to a building for a production line for roasted and fried seaweed products as well as for the packaging unit). The project is expected to be completed and commence operation by late 3Q15. Upon its completion, we expect the firm’s production capacity to increase by 5‐10% on top of the current maximum capacity of 4,026 tons p.a.

Risks

Risk in regard to dependency on major producers and distributors of raw material The major raw material for TKN’s processed seaweed snack products is seaweed imported mainly from Korea (note: Korea is the world’s leading producer and exporter of seaweed). The value of seaweed imported from Korea accounts for over 80% of the total purchase value each year. In 2014, the orders of raw material from the major producer accounted for 59.6% of the total order value. This high figure implies some business risk for TKN in case the major producer fails to meet TKN’s raw material demands, both in terms of quantity and quality. To address this concern, TKN has carefully selected suppliers and diversified orders. In the meantime, the firm has also maintained good relations with other producers who have yet to become TKN’s trade partners. In case the firm has some problems with the major trade partner, these producers can be alternative sources for raw material.


Risk in regard to dependency on a major customer TKN sold its products to a major domestic retailer with sales values at Bt605mn in 2014 and Bt148mn in 1Q15, accounting for 39% and 37%, respectively, of total sales during the periods. The high value of sales gained from only one customer implies that the firm’s revenue will be significantly affected if it happens to lose this customer. However, TKN has maintained very good relations with this customer; the two parties have been trade partners since TKN launched its operation. Meanwhile, TKN has a policy to diversity its product sales to other customer groups in order to reduce dependency on the major customer. Risk in regard to competition in the industry The snack market in Thailand has seen a number of new producers and distributors of processed seaweed snacks because the business does not require a significant amount of initial capital and the operation technology is not complicated. Hence, new players can enter the market rather easily. TKN’s direct rivals are producers and distributors who have their own brands (selling products at general convenience stores and department stores). In addition, the firm’s indirect competitors include producers and distributors who do not own their product brands and sell their products at local or conventional shops and trade fairs. Generally, processed seaweed products from different producers are quite similar; hence, the competition in the market is rather intense. However, TKN enjoys a competitive advantage over its rivals as the firm was among the first producers who successfully created its own brand that has been widely accepted. The brand awareness of TKN’s products is quite strong among consumers and its products can be found more easily than products offered by rivals. Furthermore, TKN has set aside a budget for promotional marketing campaigns through a number of media channels. It also provides sponsorship for organizing concerts by foreign artists. Finally, the firm established the Tao Kae Noi Land project in order to reach a larger base of customers; it seeks to maintain its existing customers while also expanding its customer base both domestically and internationally. Risk in regard to labor TKN’s production process requires a number of labor steps. As most of the labor is non‐Thai resident foreigners, they can move easily. There is risk that the firm’s operation costs may be impacted by changes in the amount of labor and labor efficiency. In light of this, TKN hires labor on an outsourcing basis and sets labor rates at competitive levels. Meanwhile, the firm is looking for new production technologies (e.g., packaging machinery and equipment to control temperature) in order to reduce labor risks. Risk in regard to fluctuation of exchange rates The orders of raw material (seaweed) from overseas in US dollar terms accounted for 19‐22% of the total sales in 2012‐14. The firm sells its products both domestically and internationally. The sales from overseas markets accounted for 37% ‐ 38% of the total sales in 2012‐14, most of which were in US dollar terms. Therefore, changes in the Baht/US$ exchange rate will cause sales and raw material costs to change in the same direction, which may help to stabilize the firm’s gross profit margin to a certain degree. Note that TKN is a net exporter at around 16% ‐ 18%.


Company Background

TKN was founded on 21 September 2004, with initial registered capital of Bt1mn, to produce and distribute processed seaweed products under the brand “Tao Kae Noi”. From the beginning, the firm has continued to expand its business, with two plants in Nonthaburi and Pathumthani (it now has only one plant in Pathumthani with production capacity of 4,026 tons/year). At the very beginning of its commercial operation, the firm distributed its products only in “7 Eleven” convenience stores. In addition to its core business, TKN has also invested in related businesses to support its core business as follows: 1. Tao Kae Noi Restaurant and Franchise Co., Ltd. (TKNRF) sells snacks and food souvenirs

under the name “Tao Kae Noi Land”. As of the end of 1Q15, there were nine outlets of Tao Kae Noi Land (as of 2Q15), located at department stores and community areas.

2. Want More Co. Ltd. (WMI) operates trading business for snacks and food souvenir products, such as dried fruit.

3. NCP Trading and Supply Co. Ltd. (NCP) produces and distributes monosodium glutamate for the company’s group.

Figure 7: Shareholder structure and business

Source: Company data

Currently, TKN produces and distributes processed seaweed snack products including other snack items, such as popcorn. The firm’s major product item is processed seaweed branded “Tao Kae Noi’” that comes in four forms: fried seaweed, grilled seaweed, tempura‐seasoned seaweed, and roasted seaweed, with the revenue breakdown at 65%, 25%, 3% and 2%, respectively in 2014. The remaining 5% comes from other products (popcorn, fresh popcorn, baked crispy bread, and other snacks sold at Tao Kae Noi Land). The revenue breakdown during 6M15 was: fried seaweed (60.98%), grilled seaweed (29.97%), tempura‐seasoned seaweed (2.81%), roasted seaweed (1.40%) and others (4.84%). The exposure to revenue from grilled seaweed products increased due to the growing health‐conscious trend that urged consumers to avoid oily food.


Figure 8: TKN’s products and revenue breakdown

Source: Company data

For overseas markets, TKN distributes its products through 13 major distributors in Malaysia, Indonesia, Hong Kong, Taiwan, etc., which accounted for 63% of export value in 2014. About 30% of the total export value was from domestic importers and 7.1% came from domestic exporters.

The IPO

TKN will issue 360mn IPO shares, at a par value of Bt0.25 apiece, accounting for 26% of the paid‐up capital of 1,380mn shares post‐IPO.

Figure 9: TKN’s shareholder structure Shareholder structure pre‐IPO Shareholder structure post‐IPO

Source: TKN, KTZ Research

Mrs. Orrapat 10%

Mr.Nutchatpong

10%

Mr. Itthipat 45%

Peeradechapan holding

Co.,Ltd. 35%

Mrs. Orrapat 7%

IPO 26%

Mr.Nutchatpong7%

Mr. Itthipat 34%

Peeradechapan holding Co.,Ltd.

26%


Financial tables PROFIT & LOSS (Btm) 2012 2013 2014 2015E 2016E 2017E

Revenues 2,496 2,716 2,695 3,371 3,876 4,360

Cost of sales and service (1,788) (1,783) (1,779) (2,191) (2,539) (2,856)

Gross profit 707 933 916 1,180 1,337 1,504

SG&A (582) (753) (673) (758) (853) (959)

EBITDA 191 266 324 512 599 682

Depreciation & amortization (60) (81) (72) (76) (100) (112)

EBIT 131 185 252 436 500 570

Interest expense (24) (17) (20) (15) (3) (2)

Equity earnings 0 0 0 0 0 0

Other income / exp. 5 5 9 15 15 25

EBT 107 168 232 421 497 568

Corporate tax (43) (39) (56) (84) (81) (77)

Minority interests 0 0 0 0 0 0

Extra items 42 0 22 0 0 0

Net profit 105 128 199 337 416 492

Reported EPS 0.16 0.20 0.19 0.24 0.30 0.36

Fully diluted EPS 0.16 0.20 0.19 0.24 0.30 0.36

Core net profit 63 128 176 337 416 492

Core EPS 0.10 0.20 0.17 0.24 0.30 0.36

Dividend (Bt) 0.19 0.20 0.38 0.18 0.12 0.14

BALANCE SHEET (Btm) 2012 2013 2014 2015E 2016E 2017E

Cash and equivalents 66 42 68 788 881 1,094

Inventories 208 226 228 255 295 332

Investment 0 0 0 0 0 0

PP&E‐net 321 311 391 639 845 885

Total assets 1,034 1,090 1,277 2,400 2,828 3,202

ST debt & current portion 212 325 299 10 10 10

Long‐term debt 0 0 56 42 28 14

Total liabilities 786 833 924 581 630 678

Minority interests 0 0 0 0 0 0

Shareholder equity 248 257 353 1,819 2,198 2,523

Total liab. & shareholder equity 1,034 1,090 1,277 2,400 2,828 3,202

CASH FLOW (Btm) 2012 2013 2014 2015E 2016E 2017E

EBIT 131 185 252 436 500 570

Depreciation & amortization 60 81 72 76 100 112

Change in working capital 0 (110) (12) (191) (100) (100)

FX, non‐cash adjustment & others (32) 9 (25) (99) (84) (78)

Cash flow from operations 159 165 287 222 416 504

Capex (Invest)/Divest (100) (74) (73) (248) (206) (40)

Others (31) 3 (44) 0 0 0

Cash flow from investing (132) (70) (116) (248) (206) (40)

Debt financing (repayment) (91) 101 (7) (364) (14) (11)

Equity financing 0 0 0 1,440 0 0

Dividend payment (32) (120) (199) (311) (37) (166)

Others 97 (99) 62 (19) (67) (74)

Cash flow from financing (26) (118) (144) 746 (118) (251)

Net change in cash 2 (23) 26 720 93 213

Free cash flow 59 91 214 ‐26 210 464

FCF per share (Bt) 0.09 0.14 0.21 ‐0.02 0.15 0.34

PROFITABILITY 2012 2013 2014 2015E 2016E 2017E

Revenue growth (%) na 8.8 (0.8) 25.1 15.0 12.5

EBITDA growth (%) na 39.3 21.7 58.1 17.0 13.7

EPS growth (%) na 21.7 (2.9) 25.4 23.4 18.2

Gross margin (%) 28.3 34.3 34.0 35.0 34.5 34.5

EBITDA margin (%) 7.7 9.8 12.0 15.2 15.5 15.6

Operating margin (%) 5.0 6.6 9.0 12.5 12.5 12.5

Net margin (%) 4.2 4.7 7.4 10.0 10.7 11.3

Core profit margin (%) 2.5 4.7 6.5 10.0 10.7 11.3

Effective tax rate (%) (40.5) (23.4) (24.2) (20.0) (16.3) (13.5)


Note: KT ZMICO is a partnership between KTB and ZMICO. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, KBS, PSL, SVH, VNG, ZMICO, CPI . KT ZMICO is a financial advisor for U, LOXLEY, SUTHA, ZMICO, MAKRO, CPALL, PLE, SAFARI, PACE, TPOLY, TFG, BRR. KT ZMICO is a co‐underwriter of KOOL, ORI, SCI, SR, J, TKN.

Anti‐corruption Progress Indicator

Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws.

Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives

Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes

Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.)

Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases

Insufficient or not clearly defined policy

Data not available / no policy

DISCLAIMER

This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.

KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS

STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market returns over a six‐month period due to specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to be below market returns over a six‐month period due to specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months.

NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.

KT•ZMICO Securities Company Limited 8th, 15th-17th, 19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500

Telephone: (66-2) 695-5000 Fax. (66-2) 631-1709

Phaholyothin Branch 3rd Floor, Shinnawatra Tower II,

1291/1 Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66-2) 686-1500

Fax. (66-2) 686-1666

Ploenchit Branch 8th Floor, Ton Son Tower,

900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66-2) 626-6000

Fax. (66-2) 626-6111

Sindhorn Branch 2nd Floor, Sindhorn Tower 1, 130-132

Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66-2) 627-3550

Fax. (66-2) 627-3582, 627-3600

Viphavadee Branch G Floor, Lao Peng Nguan 1 Bldg.,

333 Soi Cheypuand, Viphavadee-Rangsit Road, Ladyao, Jatujak, Bangkok 10900

Telephone: (66-2) 618-8500 Fax. (66-2) 618-8569

Chachoengsao Branch 108/34-36 Mahajakkrapad Road,

T.Namuang, A.Muang, Chachoengsao 24000

Telephone: (038) 813-088 Fax. (038) 813-099

Chonburi Branch 4th Floor, Forum Plaza Bldg.,

870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287-635

Fax. (038) 287-637

Pattaya Branch 382/6-8 Moo 9, T. NongPrue,

A. Banglamung, Cholburi 20260 Telephone: (038) 362-420-9

Fax. (038) 362-430

Khon Kaen Branch 5th Floor, Charoen Thani Princess Hotel,

260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000

Telephone: (043) 389-171-193 Fax. (043) 389-209

Sriworajak Building Branch1st – 2nd Floor, Sriworajak Building, 222

Luang Road, Pomprab, Bankgok 10100

Telephone: (02) 689-3100 Fax. (02) 689-3199

Central World Branch 999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan,

Bangkok 10330 Telephone: (66-2) 673-5000,

(66-2) 264-5888 Fax. (66-2) 264-5899

Chiang Mai Branch 422/49 Changklan Road, Changklan

Subdistrict, Amphoe Meuang, Chiang Mai 50100

Telephone: (053) 270-072 Fax: (053) 272-618

Phuket Branch 22/61-63, Luang Por Wat Chalong Road,

Talat Yai, Mueang Phuket, Phuket 83000

Tel. (076) 222-811,(076) 222-683 Fax. (076) 222-861

Pak Chong Branch 173 175, Mittapap Road, Nong Sarai, Pak Chong,

Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574

Hat Yai Branch 200/301 Juldis Hatyai Plaza Floor 3,

Niphat-Uthit 3 Rd, Hatyai Songkhla 90110

Telephone: (074) 355-530-3 Fax: (074) 355-534

Phitsanulok Branch Krung Thai Bank, Singhawat Branch

114 Singhawat Road, Muang, Phitsanulok 65000 Telephone: 083-490-2873

Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our

views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in

securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are

made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.

Bangkhae Branch 6th Floor The Mall Group Building Bangkhae

275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160

Tel. (66-2) 454-9979 Fax. (66-2) 454-9970

Nakhon Ratchasima Branch 624/9 Changphuek Road, .

Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222

Fax: (044) 247171

Cyber Branch @ North Nana Krung Thai Bank PCL, 2 Floor,

North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua

Subdistrict , Wattana District, Bangkok 10110

Telephone: 083-490-2871

Nakhon Pathom Branch1156 Petchakasem Road, Sanamchan Subdistrict,

Amphoe Meuang , Nakhon Pathom Province 73000

Telephone: (034) 271300 Fax: (034) 271300 #100

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