Logic Invest Research Blog

Author: loginvest   |   Latest post: Mon, 18 Mar 2019, 5:21 PM


Teo Seng Capital Berhad 4Q FY 2018 Results Report (HOLD)

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YTD 4Q FY18 revenue increased by 15.6% vs YTD 4Q FY17; 4Q FY18 revenue and net profits have increased sequentially vs 3Q FY 18. Egg prices rose again in 4Q 2018 and lifted sales nicely. However, egg prices are now quite elevated, and other players are adding capacity rather aggressively. Thus we remain cautious on our sales volume and egg price outlook. Feed prices remain subdued and the strong MYR is also helping margins. The performance for nearly all the poultry players has improved substantially over the past few quarters, but competitive pressures are likely to grow. In addition, 1Q 2019 will likely see a jump in labour costs for this industry. 


Risks to our recommendation and target price include: i) rising feed prices, ii) higher USDMYR exchange rates, iii) an increase in the general level of interest rates, iv) lower egg prices and v) continued overcapac-ity and competition in the poultry/egg sector. 


We maintain our HOLD recommendation on Teo Seng Capital Berhad (“TSCB”) whilst raising our fair value estimate to MYR 1.18. Manage-ment indicates that conditions are improving over the next few quarters. We expect feed cost to remain muted, whilst the stronger MYR would also maintain margins. The company has invested heavily in new capac-ity, as have other players in the industry. However, average selling prices for eggs have been on the rise for the past several months. It is possible that egg prices may come off a bit this quarter or next. Value investors will want to consider this stock at levels near or below MYR 0.90. 


Teo Seng Capital Berhad is engaged in investment holding and provision of management services. The Company is a subsidiary of Advantage Valuations Sdn. Bhd. The Company's ultimate holding company is Emerg-ing Glory Sdn. Bhd. The Company operates in three business segments: investment holding segment, trading of pet food, medicine and other related products segment, and poultry farming. The Company subsidiar-ies include Teo Seng Farming Sdn. Bhd., Teo Seng Feedmill Sdn. Bhd., Success Century Sdn. Bhd., Ritma Prestasi Sdn. Bhd., Teo Seng Paper Products Sdn. Bhd. and Liberal Energy Sdn. Bhd. On March 4, 2011, the Company's subsidiary acquired a wholly owned foreign subsidiary, Pre-mium Egg Products Pte Ltd (Premium Egg).

Source: Wilson & York Securities Research - 20 Feb 2019

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