LTKM: Egg-citing Times No More (UPDATED)

Results Update

LTKM announced its results for QE30/6/2015 on August 27. Its net profit dropped 90% q-o-q or 66% y-o-y to RM2.5 million while revenue was down 18% q-o-q or 10% y-o-y to RM41 million. Net profit declined sharply q-o-q due to the fall in egg prices & the absence of a RM11.73 million gain arising from revaluation of investment properties recognized in QE31/3/2015.


Table 1: LTKM's 8 quarterly result

Chart 1 shows the movement of broiler price & egg price for 15 years while Chart 2 shows the movement of the main chicken feeds (soyabean meal & corn) for 10 years. The movement of selling prices is fairly consistent with the movement of the raw material costs.

Despite the different time period, the absence of grid on the charts & line chart shortcoming, we can clearly see that there was one period of about 3 years where egg prices were rising while the cost of feed were dropping. This gave rise to abnormally high profit for the poultry players such as LTKM. This abnormal situation could have induced the same players to expand aggressively and this leads to a correction in the prices of egg. I think the period of abnormal profit for poultry players is over.


Chart 1: Broiler & Egg prices from Jan 2000 to Aug 2015 (Source: The Edge Financial Daily)


Chart 2: Soyabean meal & corn prices from 2005 to 2015 (Source: Nasdaq.com_ here & here)


Chart 3: LTKM's 35 quarterly results

Valuation

LTKM (closed at RM1.56 yesterday) is now trading at a PER of 4.9 times (based on last 4 quarters' EPS of 32 sen). However, if we annualized the profit (using the 1Q2016 number), the PER for LTKM is 10.4 times. At this PER, LTKM is deemed fairly valued.

Technical Outlook

LTKM has broken below its uptrend line, SS at RM1.70. Its immediate support & resistance are RM1.30 7 RM1.70, respectively.


Chart 4: LTKM's monthly chart as at Sept 22, 2015 (Source: ShareInvestor.com)

Conclusion

Based on poor financial performance & bearish technical outlook, LTKM is rated as a TAKE PROFIT or SELL.

Due to availability of new information, the recommendation in this post has been revised to BUY ON WEAKNESS. For more, go here.

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, LTKM.