Summary

• Teo Seng Capital Bhd’s (TEOSENG) posted core net profit of RM12.0m in 4Q21 against a core net loss of -RM2.1m in 4Q20. Nevertheless, full year core net losses stood at -RM2.0m (vs. core net profit of RM4.1m registered for FY20) as the high feed cost coupled with the adjustment for exceptional gains in disposal of PPE and right-of-use assets in 1H21 dragged the bottom line. The results came in above our forecast of -RM7.1m, mainly due to the higher-than-expected contribution from the poultry segment under current quarter.

• YoY, TEOSENG turned to core net profit of RM12.0m in 4Q21, mainly due to the improved ASP of chicken eggs along with the recovery of egg consumption. QoQ, the group’s core net profit jumped 425.2% to RM12.0m, driven by the increased sales quantity and slightly improved ASP of chicken eggs. The bottom line was also lifted by cost effectiveness as well as uplift of fair value of biological assets.

• On average, the chicken egg price surged by 50.5% YoY in 4Q21 to average of RM0.35 per egg, lifted by recovery in chicken eggs demand amid gradual reopening of economic sectors as well as the resumption of tourism. The increase in chicken egg prices has translated to higher revenue YoY in the poultry farming segment.

• Cost wise, soybean prices continued its downtrend move, dropping 7.8% QoQ, while the maize price increased 9.4% QoQ, leading to an approximately 1.0% reduction in feed cost.

• Moving forward, we expect the chicken eggs prices to linger around RM0.35 per Grade C chicken egg on the back of the heating-up inflation, as well as the limited supply in the market due to high feed cost, coupled with increasing demand amid economic recovery following the vaccination coverage of more than 90% of the adult population.

• TEOSENG is looking to resume its expansion plan in FY22 and FY23 via addition of new houses or increase of the layers density in existing houses. The daily chicken eggs production is projected at 4.25m in FY22 and 4.50m in FY23.

Valuation & Recommendation

• We believe the outlook is turning positive for TEOSENG amid recovery of chicken egg demand. We remained positive on the group as a fully integrated egg producers with economic of scale leveraging on its production efficiency and cost effectiveness. Consequently, we increased our FY22f forecasted earnings by 56.7% to RM39.8m. The FY23f earnings is projected at RM41.7m.

• We upgrade TEOSENG to BUY (from HOLD) with a revised target price of RM1.08. The target price is derived from ascribing a target PER of 8.0x to its FY22f EPS of 13.5 sen.

• Risks to our recommendation include the continued high commodity prices of maize and soybean which may potentially deteriorate the group’s margin. The recent resurgence in Covid-19 cases in Malaysia due to the worsened Omicron wave could post risk to economic recovery and impact the demand of chicken eggs.

Source: Mplus Research - 17 Feb 2022