Results Report

YTD 30 FY17 revenue decreased by 5.0% vs YTD 30 FY16; however, net profits have improved sequentially. Teo Seng is still operating at a small pre-tax loss of RM 7.7 mn YTD 30 FY17, due to lower egg selling prices. Prospects for the company remain challenging as depressed egg selling prices remain in place. Indeed, many players in the Malaysia poultry industry are earning margins well below those seen in the recent past. However, the picture may be starting to brighten for the poultry players on cost side. Feed prices are moderating and the stronger MYR is serving to further lower the cost of imported inputs.

Investment Risks

Risks to our recommendation and target price include: i) rising feed prices, ii) higher USDMYR exchange rates, iii) an increase in the general level of interest rates, iv) weak demand for eggs due to lower dispos-able income and v) continued overcapacity and competition in the poul-try/egg sector. 

Recommendation

We maintain our HOLD recommendation on Teo Seng Capital Berhad ("TSCB") whilst increasing our fair value estimate to MYR 0.82. Margins at some of the other listed poultry companies may be finding a bottom. After another quarter or two of low margins, the picture may begin to brighten for TSCB. The cost of feed is moderating and the stronger MYR will further reduce costs. The company has invested heavily in new capacity, however demand increases have not kept pace with capacity. It may take a few quarters for profits to recover to healthier levels. Value investors will want to monitor this stock at levels near or below MYR 0.80. 

Company Profile

Teo Seng Capital Berhad is engaged in investment holding and provision of management services. The Company is a subsidiary of Advantage Valuations Sdn. Bhd. The Company's ultimate holding company is Leong Hup Holdings Berhad. The Company operates in three business seg-ments: investment holding segment, trading of pet food, medicine and other related products segment, and poultry farming. The Company sub-sidiaries include Teo Seng Farming Sdn. Bhd., Teo Seng Feedmill Sdn. Bhd., Success Century Sdn. Bhd., Ritma Prestasi Sdn. Bhd., Teo Seng Paper Products Sdn. Bhd. and Liberal Energy Sdn. Bhd. On March 4, 2011, the Company's subsidiary acquired a wholly owned foreign sub-sidiary, Premium Egg Products Pte Ltd (Premium Egg).

Source: Wilson & York Securities Research - 17 Nov 2017