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Thursday, October 01, 2015

Teoseng & LTKM: Egg Prices Recovered

There is a research report on Teo Seng Capital Bhd ('Teoseng') from AMResearch (via klse.i3investor) which states that egg prices are rebounding. To wit:

From our recent discussions with management, we learnt that egg prices have gradually rebounded from 28 sen/egg in 2QFY15 to 34 sen/egg over 3QFY15. Note that the latter was the average egg price in 4QFY14 and 1QFY15 and is the highest historically.

Interestingly, we also understand that the price of its egg exports to Singapore (~30% of total production) is presently as high as 38 sen/egg. This is unusual given that the price differential between the domestic and Singapore market is typically between 1-2 sen/egg. The wider spread is mainly attributable to the current weakness of the RM vis-à-vis the SGD (YTD: -31%).
Premised on the rebound in egg prices, AMResearch reaffirmed its earnings projection:

We make no changes to our FY15F-FY17F earnings estimates unchanged for now. The rebound in egg prices alongside the timely addition of two new farms in July and November (+25% capacity from 3.1mil eggs per day) bode well for TSC’s 2HFY15 earnings. 
Thus, AMResearch reiterated its BUY call on Teoseng at "an unchanged fair value of RM2.70/share. This is based on an unchanged fully-diluted PE of 13x FY15F EPS".
From this report, I have to revise my earlier calls on Teoseng as well as LTKM which were basically premised on a downtrend for egg prices. As both stocks have broken above their medium-term downtrend line (see from the chart below), the proper recommendation should be BUY ON WEAKNESS. Any inconvenience caused is much regretted.


Chart 1: LTKM's weekly chart as at Sept 30, 2015 (Source: ShareInvestor.com)


Chart 2: Teoseng's weekly chart as at Sept 30, 2015 (Source: ShareInvestor.com)

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Teoseng and LTKM.

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