Summary

• Teo Seng Capital Bhd’s (TEOSENG) 4Q22 core net profit climbed 7.8% YoY to RM12.9m, making up for FY22 net profit of RM21.2m (vs. -RM2.0m for 12M21). The results came in above expectations, amounting to 182.8% of our full year forecast at RM11.6m. Key deviations were mainly due to higher-than-expected margin reported in the current quarter resulted from higher selling price for eggs.

• YoY, TEOSENG’s core net profit improved 7.8%, primarily attributed to a higher contribution from the poultry farming segment due to the improved selling price of chicken eggs, coupled with the subsidy from the government that has cushioned the impact of continued higher feed cost. QoQ, core net profit made a significant jump of >100% on the back of the improvement in selling price of chicken eggs and sustainable contribution from animal health products segment.

• On average, the chicken egg price rose 2.0% YoY in 4Q22 to RM0.35 per Grade C chicken egg, in tandem with higher feed cost. The higher egg price has translated to higher revenue YoY for the poultry farming segment.

• Moving forward, we think that the price of Grade C chicken egg will linger around RM0.35. Do note that the ceiling prices are expected to be uplifted after June. An update report will be issued upon upliftment. In the shorter term, operating environment remains challenging in view of the elevated feed cost, as the egg price has been under ceiling price control since November 2022.

• Production wise, daily chicken eggs production stood around 4.0m. Although the group’s plan to modify the chicken houses was delayed due to the implementation of Movement Control Order (MCO), TEOSENG is now putting the expansion back on schedule to achieve around 4.50m daily chicken egg production in FY24. Meanwhile, the group remains focus on its trading of animal health products division which can cushion the impact of elevated feed cost.

• Meanwhile, TEOSENG is seeking opportunity to gradually grow their export market to enjoy better margin. The group has also developed more direct sales channels such as distribution center and direct sales team to sell at better pricing. We believe TEOSENG is in a better position as compared to its peers to mitigate the impact from price control mechanism and elevated feed cost.

Source: Mplus Research - 22 Feb 2023