Logic Invest Research Blog

Author: loginvest   |   Latest post: Wed, 8 Jan 2020, 4:53 PM


Teo Seng Capital Berhad - 3Q FY 2019 Update Report

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Egg prices rose nicely over 3Q 19 whilst feed prices softened; thus TSCB had quite a good quarter. However, economic conditions in Malaysia and especially Singapore continue to deteriorate. The recent rate cuts around the region support our cautious outlook that we noted in our previous report. Looking ahead, we remain cautious on our sales volume and egg price outlook. Feed prices may trend higher over the next few quarters as crop damage seems to be on the rise in many countries. Competitive pressures are growing as other large players have announced capacity expansion plans. That said, TSCB will likely fare better than some of the other listed poultry/egg players.


Risks to our recommendation and target price include: i) rising feed prices, ii) weaker MYR exchange rates vs USD, iii) an increase in the general level of interest rates, iv) lower egg prices, v) continued overcapacity and competition in the poultry/egg sector and vi) sharply lower levels of economic activity in Malaysia and Singapore.


We maintain our HOLD recommendation on Teo Seng Capital Berhad (“TSCB”) but increase our fair value estimate to MYR 1.20. As above feed costs may rise and a weaker MYR would reduce margins. The company has invested heavily in new capacity, as have other players in the industry. It is possible that egg prices may come off a bit more in 4Q 19, however prices seem reasonably well supported and demand for inexpensive protein will remain firm. Finally, the dividend yield for TSCB seems attractive and sustainable. Value investors will want to consider this stock at levels near or below MYR 0.94.


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 Emerging 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 subsidiaries 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, Premium Egg Products Pte Ltd (Premium Egg)

Source: Wilson & York Securities Research - 20 Nov 2019

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