Teoseng: All the Eggs in One Basket (UPDATED)

Background

Teo Seng Capital Berhad ('Teoseng') is involved in poultry farming, especial egg production, and the trading in chicken feed. Teoseng is 51%-owned by Advantage Valuations Sdn. Bhd. The latter is part of the Leong Hup group of companies that has extensive poultry farming business in Malaysia & Indonesia. Teoseng is one of two companies within the group that are listed on a stock exchange. The other company is PT Malindo which has been listed on the Indonesia Stock Exchange since 2006. For more on the background of the Leong Hup group, go here.

Recent Financial Results

Below are the table & the diagram of Teoseng's P&L for the past 10 quarters. We can see clearly that the company's top-line & bottom-line are in a steady uptrend until last quarter. As noted in the preceding post on LTKM, the prices of eggs have dropped significantly over the past few months. As a result, the company's net profit margin has shrunken to single digit again after 5 quarters of double-digit net profit from QE30/4/2014 to QE30/4/2015.


Table 1: Teoseng's 10 quarterly result


Diagram 1: Teoseng's 10 quarterly result

Valuation

Teoseng (closed at RM1.41 yesterday) is now trading at a PER of 7.5 times (based on last 4 quarters' EPS of 18.7 sen). However, if we annualized the profit (using the 2Q2015 number), the PER for Teoseng is 14 times. At this PER, the stock is deemed fully valued.

Notable Changes in Shareholding

We can see that one of the major shareholders, Nam Yok San has been disposing off some of his shares in the company (here, here & here). In total, he has disposed off 646000 shares in August & July. Valuation could be one of the possible reasons for selling. We cannot be sure of the real reason behind it.

Technical Outlook

Teoseng is in an intermediate downtrend line, with resistance at RM1.50. Support is at the horizontal lines at RM1.20 or RM1.10.


Chart 2: Teoseng's weekly chart as at Sept 22, 2015 (Source: ShareInvestor.com)

Conclusion

Based on poorer financial performance & mildly bearish technical outlook, Teoseng is rated as a SELL INTO STRENGTH at RM1.40-1.50.

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, Teoseng.