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Friday, March 02, 2018

Teoseng: In a Sweet Spot

Result Update

In QE31/12/2017, Teoseng's net profit rose 179% q-o-q or 237% y-o-y to RM12.8 million while revenue rose 8% q-o-q or 6% y-o-y to RM118 million. The revenue increased mainly due to the increase in selling price of eggs and sales quantity. Coupled with the lower raw material and operating cost, the pre-tax profit increased from RM3.1 million to RM11.9 million.


Table: Teoseng's 8 quarterly result


Graph 1: Teoseng's 21 quarterly result

Heading for Higher Profit

Poultry players can be involved in layer or broiler operation (to produce either egg or meat), upstream feedmill operation or downstream retail operation. Teoseng is involved mainly in layer operation and it is the biggest layer farm operator in the country. This is based on an old report from Bursadummy (here).


Table 2: Malaysian major poultry operators (Source: Bursadummy)

For Teoseng o make good profit, it needs to have good egg prices and low raw material prices. In the past 6 months, egg prices have been fairly firm at around an average of 35 sen apiece. If egg prices can stay at this level for a few more months, Teoseng will get a big boost in revenue. Teoseng will get a secondary lift in revenue due to higher output - unlike some operators which have not increased their output capacity due to earlier depressed egg prices.


Graph 2: Egg Average Price Chart as at Feb 9, 2018 (Source: DVS. gov.my)

Teoseng will benefit from lower corn prices. Corn, which is the main input for production of chicken feed, have been at the low for the past 3 years. Despite this favorable price, poultry farmers did not enjoy the full benefit due to weak MYR. Now that MYR has strengthened, the poultry farmer will enjoy the benefit of lower corn prices.


Chart 1: Corn price for 10 years to Feb 2018 (Source: Nasdaq.com)

Based on the above, I believe Teoseng is likely to see higher profit next few months.

Valuation

Teoseng (closed at RM0.985 yesterday) is now trading at a trailing PER of 84 times (based on last 4 quarters' EPS of 1.16 sen). However, if we annualized the profit (using the QE31//12/2017 number), the PER for Teoseng is 6 times. At this PER, the stock is deemed fairly attractive.

Technical Outlook

Teoseng is in a downtrend. If it can surpass the RM1.00-1.05, the stock may be over and the next upleg may begin.


Chart 2: Teoseng's weekly chart as at Mar 1, 2018 (Source: ShareInvestor.com)

Conclusion

Based on improved financial performance and attractive valuation, Teoseng could be a good stock for a recovery play.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

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