Background and Core Business

Teo Seng Capital Bhd is an investment holding company, principally involved in the poultry farming industry. Through its wholly owned subsidiaries, Teo Seng Capital is also engaged in the production of animal feeds, manufacturing of paper egg trays, and distribution of imported animal health products for both farm and pet animals.

Market capitalisation stands at RM 345 million. They are categorised in Consumer Products in Bursa Malaysia under the Agricultural Commodities/Milling industry.

The group’s subsidiaries i.e. Teo Seng Farming Sdn Bhd and Success Century Sdn Bhd specialise in rearing chickens to produce eggs; this is known as layer farming. The daily output of eggs produced averages about 1.7 million, and are sold/marketed under the brand “Happy Eggs”.

Along the way, Teo Seng has also achieved significant cost control by in-house production of animal feeds through their other subsidiary Teo Seng Feedmill Sdn Bhd. This provides a buffer against volatile prices of feed ingredients consisting mainly of corn and soya bean.

Another subsidiary known as Teo Seng Paper Products Sdn Bhd manufactures egg paper trays from recycled paper and boxes.

In 2005, Teo Seng acquired Ritma Prestasi Sdn Bhd, a local distributor of animal health products and pet food from companies such as Bayer Thai, Vetpharm Laboratories Singapore, Nutri-Ad International Belgium, FarmCare GB from the UK and also Bayer CropScience Sdn Bhd. It holds distribution rights from Bayer Thai in Malaysia, Singapore and Brunei, giving it a regional presence.  This acquisition ties in well with the group’s objective of sourcing animal health products for their own operations.

Teo Seng is currently in their final quarter for FY 2016 which ends on 31^st December 2016. 3^rd quarter results should be expected in the month of November 2016.

Financial Brief and Ratios: Trailing Twelve Months (TTM)

Teo Seng has managed to increase its revenue y-o-y from FY2011 to FY2015. Latest figure in FY2015 sees Teo Seng achieving its highest turnover yet at RM 420 million. Nevertheless, net earnings did not increase in tandem, being somewhat irregular in trend. As a matter of fact, net earnings dropped 15% y-o-y from FY2014 to only RM 41 million. This translated to a decrease in EPS y-o-y from 17 sen to 14 sen. Net Profit Margin is around 9%. Since it derives its revenue mainly from the sale of eggs, market prices will play a role in dictating the profit trend for Teo Seng, not to mention the prices for grains which are used as chicken feed.

PE ratio stands at 11, which at a glance does not point to the company being over valued at this stage.

Shareholders’ funds experienced a ROE of 14.62%. The company is positively geared with a Total Debt/Equity ratio of 0.085. Their liquidity is acceptable but not great with a Current Ratio of 1.076.

Since 2009, Teo Seng has been rewarding its shareholders with dividends. In FY2015, the dividend yields were around 2.24%, a far cry from 6% in FY2014. However, that could be attributed to the stellar performance in FY2014. Prior to that, dividend yields averaged about 1.5%.

Teo Seng’s balance sheet has also seen an increase of long and short term debt these couple of years, which is reflected in the increase of capital expenditure in its cash flow statement. In FY2015 alone, cash outflow for investing activities totaled RM 55 million. In spite of that, the group still managed to squeeze out Free Cash Flow of about RM 600,000 in FY2015. This feat is likely hard to be repeated this year as the returns from capex will take time to materialise.

iVolume Spread Analysis (iVSA) & comments based on iVSAChart software – Teo Seng

The latest 6-month weekly iVSAChart of Teo Seng shows the stock is still in a downtrend and at current price level, the stock is at its 52 week low.

One aspect to note is that the stock has begun to show some exhaustion in its downward pressure, coupled with the emergence of Signs Of Strength (green arrows).  This is pronounced around end September 2016 when strong hands emerged to buy the stock, putting a halt to the downtrend. However, there was lack of follow through buying after that and prices retraced again.

Need to wait for more Signs Of Strength (green arrows) to be detected and price is supported around current levels, which would hint that smart money are accumulating, before considering taking position for this stock.

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