Teo Seng Capital (TEO SENG | 7252)

Last Price: RM2.32 | Technical Call: BUY

Company Background. Teo Seng Capital (Teo Seng) is a Malaysia-based company specializing in poultry farming, as well as the production and distribution of related products such as chicken eggs, animal feeds, egg trays, organic fertilizers, and animal health products. The group's operations are divided into two main divisions: poultry farming and the trading of poultry-related products. These divisions complement one another, creating synergies that enhance the group's competitive edge in the industry. Teo Seng currently operates 24 farms and 4 distribution centers across Peninsular Malaysia.

Prospects. (i) Focus on an expansion plan that includes constructing new farms and refurbishing existing ones, with the aim of increasing the group's capacity and further strengthening its competitive advantages, targeting a daily chicken egg production of 4.5mil eggs, (ii) Expand the customer base by establishing distribution centers in key regions and introducing new products, such as boiled eggs and processed hen products. The venture into the ready-to-eat market addresses the demand for speed, convenience, and time-saving in today's fast-paced environment, and (iii) Invest in solar photovoltaic (PV) systems across farms and factories for renewable energy and cost savings. Currently, 17 solar PV systems are operational, with 9 more set to begin in FY24.

Financial Performance. In 1HFY24, Teo Seng reported higher revenue of RM375mil (+4% YoY) with a PAT of RM60.4mil (+34% YoY). This was primarily due to improved egg selling prices and volume, cost efficiency, higher sales of older hens, and stable demand for animal health products.

Valuation. Teo Seng is currently trading at an attractive 4x trailing P/E, which is lower than Bursa Consumer Index's 15.7x. As a comparison, QL Resources, involved in integrated livestock farming and distribution of animal feed raw materials & health products, trades at a much higher trailing P/E of 37x.

Technical Analysis. Teo Seng's buying interest is back after it broke out of the 1-week bullish flag pattern with a long positive candle two sessions ago. The stock's move above the RM2.15 resistance coupled with its rising EMAs, indicates that the near term bullish trend may persist. A bullish bias may emerge above the RM2.15 level, with stop-loss set at RM1.98, below the 50-day EMA. Towards the upside, near-term resistance level is seen at RM2.60, followed by RM2.80.

Entry: RM2.15-2.32

Target: RM2.60, RM2.80

Exit: RM1.98

Source: AmInvest Research - 27 Sep 2024