An ‘egg-cellent’ year for Teo Seng amid stable demand?

14 Feb 2020 / 11:07 H.

KUALA LUMPUR: One of Malaysia’s largest egg producer, Teo Seng Capital Bhd aims to produce approximately 4.1 million eggs per day by year-end from 4 million now following the completion of expansion works on its feed mill plant which will cater for the increasing number of chickens.

According to Malacca Securities Sdn Bhd, the company has set a target of producing five million eggs by the end of 2022.

“As of 2019, Malaysia exported a total of 48 million eggs, of which 42.4 per cent or 20.3 mln eggs were exported to Hong Kong,” the firm said in its research note, adding that demand to remain stable as Malaysia remains free of Avian flu for the time being.

The research firm also said it continues to like Teo Seng for its established presence in the Hong Kong and Singapore market

For 2019, Teo Seng’s cumulative net profit jumped 93.8 per cent year-on-year to RM58.8 million from RM30.39 million.

Revenue for the year gained 11.6 per cent to RM547.1 million from RM490.28 million in 2018.

Malacca Securities also said renewed volatility of the ringgit against the US dollar bodes well for Teo Seng in terms of a lower cost of feed expenses and its’ export segment,

“In view of the current stable feed cost and our cost efficiency, the directors are in the opinion that the financial performance for the forthcoming year is satisfactory,” the company told Bursa Malaysia.

Hence, Malacca Securities has maintained its “Buy” recommendation on Teo Seng with an unchanged higher target price of RM1.65.

At 9.30 am, its share price was down three sen to RM1.12 with 275600 shares traded.

“We continue to like Teo Seng as it is one of the largest vertically integrated chicken egg players in Malaysia, backed by its gradual production expansion plans. We reckon that the recent weakness of share price has already reflected the potential dilution of warrants and the pullback of chicken eggs prices.”

The downside risk for Teo Seng would be avian influenza outbreak – a viral infection that can infect not only birds but also humans and other animals.

Given that chicken feed, which consists of mainly soybean and maize make up 70 per cent of its feed cost, a spike in the said commodity prices will also negatively impact its margins and vice versa.

“A firmer ringgit against the U.S. dollar could also affect the group’s bottom line as a recovery in the local currency against the greenback will have a positive impact on the group’s earnings and vice versa, as the commodity purchases are denominated in U.S. Dollars,” it added. -Bernama

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