Company Background. Teo Seng Capital (Teo Seng) is an integrated layer farming company in Malaysia. The group’s core business in integrated layer farming is underpinned by 5 key divisions: feedmill, paper egg tray, fertiliser, egg processing and animal health product. These business divisions are categorised into 2 segments: (i) poultry farming, and (ii) investment & trading of other poultry related products. Currently, Teo Seng has 24 farms and 3 distribution centers located in Peninsular Malaysia.

Prospects. (i) Improve factory automation process by upgrading existing farm facilities and equipment to achieve a daily chicken egg production of 4.5mil eggs by FY24, (ii) Expand customer base through distribution centers in key regions and introduce new downstream products such as boiled eggs and processed old hen products, (iii) Invest in solar panel systems across farms and factories for renewable energy generation and cost saving, and (iv) Total 10 fertiliser plants are in place to support the layer farming business, enhance waste management and improve business sustainability.

Financial Performance. In 1HFY23, Teo Seng reported higher revenue of RM361mil (+18.5% YoY) with a PAT of RM45mil (+5.5x YoY). This was mainly contributed by improved selling prices and volume of eggs, higher sales of old hens and sustainable profit contribution from animal health products.

Valuation. Teo Seng is currently trading at an attractive 6.3x trailing P/E, which is lower than its 5-year forward average of 8.6x and Bursa Consumer Index’s 17.6x. As a comparison, QL Resources, involved in integrated layer farming and distribution of animal feed raw materials/health products, trades at a much higher trailing P/E of 37x.

Technical Analysis. Teo Seng may trend higher after surging to a new multi-year high and closed above the RM1.14 resistance a few sessions ago. With the 20-day EMA remaining above the 50-day EMA since a bullish crossover in late March, the uptrend may continue in the near term. A bullish bias may emerge above the RM1.14 level, with stop-loss set at RM1.05, below the 50-day EMA. Towards the upside, near-term resistance level is seen at RM1.40, followed by RM1.50.

Source: AmInvest Research - 9 Oct 2023