Taokaenoi Food and Marketing Public Company Limited (Bloomberg Code = TKN-R:TB) is incorporated in 2004 and listed in The Stock Exchange of Thailand in November 2015. The main business is processing, distributing and selling seaweed snacks under its own brand to consumers.
The company offers seaweed products in several flavours, which include “Original”, “Tomyam Gung”, “Wasabi” and “Seafood”. Good news is, these products have been in Malaysia for some time. One can easily buy Taokaenoi seaweed products in 7-Eleven, Jaya Grocer, and even retail stores in petrol stations.
What caught my attention now is the recent correction in global stock market has beaten down its share price (down by 49% from its peak of THB 28.75). At the time of writing, there are no news or announcement on product quality issues, management fraud etc. So, before you put any “Buy” or “Sell” order, let’s examine the underlying quality of business.
Here are 4 key highlights on Taokaenoi Food and Marketing Private Company Limited you must know before investing in it (or find your answer HERE) :
No.1: Increasing Demand in Seaweed for Human Consumption
Human has been consuming seaweed since prehistoric times, notably in eastern Asia countries such as China, Japan and Korea. In recent years, western countries have found a renewed interest in the use of seaweed in dishes, leading to reintroduction of seaweed into European region and US. Seaweed snacks are perceived as healthier alternative to other snacks like potato chips and are mainly produced from Red Seaweeds (Source: FAO). The chart above illustrated the growth in demand for Red Seaweed globally, and the demand is still expected to increase!!
No. 2: Dominant Player in Home Market Expanding Internationally
(Source: “Opportunity Day” Announcement)
According to “Opportunity Day” announcement by the company, they are having dominant market share of 72% in Thailand, its home market. That leaves only 28% for its competitors such as “Masita”, “Seleco” and “Tawandang”. Having dominant position in home market demonstrated the effectiveness of their marketing strategies and distribution channels, which is crucial for snack products to reach its customers.
(Source: Annual Report)
As sales growth in home market slows down, the company turn to international market to drive its growth. With successful sales penetration to China market, its international market segment has been growing at CAGR of 22.64%. Recently, the company began its expansion into US market with its acquisition of Gim Factory Inc. From its financial statements, one would realize the proportion of Sales and Promotion Expenses are moving in tandem with the company’s expansion plan (i.e. 2014 – China penetration, 2017 – expansion in US).
No.3: High Stake by the Board of Directors (BOD)
(Source: Annual Report)
The role of BOD in the performance of a business has never been more important. Scenarios such as misplaced capitals, fraudulent accounting, insider selling shares and even low shareholding of the BOD have usually led to sour investment results for investors.
Taokaenoi Food and Marketing Private Company Limited is owned by Peeradechapan family members, with a total shareholding of >60%. They are also in key positions within the company leadership positions, i.e. CEO, MD of international Market and MD of Business Support. This shows that their interests are aligned with shareholders’, as they have a significant portion of capital invested in the business.
No.4: High Raw Material Cost Portion
(Source: Compoany “Opportunity Day” Announcement)
The cost structure of the company has large proportion of seaweed cost to the tune of 44% in 2017, followed by 23% in packaging and 17% in labor cost. This means that the profitability of the business is sensitive towards the cost of procuring seaweed. At the date of writing, Taokaenoi Food and Marketing Private Company Limited do not have its own seaweed farm, but source the raw material from farms in South Korea (Source: Company website). Without own seaweed farm (which has additional set of operating cost), and that raw material cannot be kept for too long due to its required freshness, the company will have limited option in this area.
Taokaenoi Food and Marketing Private Company Limited will potentially experience high growth in sales with its continued expansion in international market and brand marketing. Coupled with a high stake by the BOD, it is no doubt a good candidate for investment consideration. However, it is also important for you to consider well into the associated risks before making a move.
The main products of the company is seaweed snacks, and naturally seaweed will be a major cost to the company. With the company having limited option over its choice of raw material suppliers due to perceived higher quality material from South Korea, we should be more conservative when considering investment in this company. At the time of writing, Taokaenoi Food and Marketing Private Company Limited is trading at THB 14.50 (PE of 33.70 times). This converts to an unsustainable annual growth rate of 20% to 25% for the next 3 years, and I would wait for further corrections before considering a move.
Disclosure: Not vested.
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