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There is little doubt that Teoseng is a successfully-run poultry company.
Its revenue and especially net profit, grew by leaps and bounds in the last 2 years.
Its FY14 ROE breaches 30.
It gives great dividends and bonus issue.
It has a 5-year plan to increase its chicken egg production capacity by 60% from 3.2 mil/day to 5.1 mil/day.
It plans to increase its export to Singapore from 30% to 40%.
Its first of five biogas plant to save cost is on track to be completed this year.
It aims to be the largest egg producer in Malaysia in the future.
Despite all these positive notes, Teoseng's share price has been trending down since reaching a height at RM2.20 in end of Mac15 after bonus issue.
Currently it is trading at slightly above RM1.50 level, and failed to follow the spectacular rebound in KLCI in the past 3 days.
If we annualize FY15Q1's PATAMI of RM17.5mil, its shares are traded at projected PE of only 6.4x, and this company is still in expansion mode.
Is poultry theme play over?
Teoseng share price in 2015
How did Teoseng achieve such an impressive financial result lately? Its net profit jumps 180% in just 2 years.
Though Teoseng has several businesses such as poultry farming (layer), trading of animal health products, manufacturing of paper egg trays & poultry feeds, its poultry farming contributes 90% of its bottom line in FY14.
So, the vast improvement in its earning should be related to its poultry farming segment.
I'm not sure how much has Teoseng expanded its layer farms between 2012-2014. Increased egg production capacity will certainly contribute directly to its revenue and profit.
I feel that there should be some expansion but perhaps not that much.
So, the improvement in financial performance in the last 2 years should be largely due to lower material cost and higher egg selling price.
Feeds (corn/soybean) make up about 70% of layer farming's cost. From 2012 to 2014, corn price fell by more than 50%. Surely low feeds price has raised Teoseng bottomline significantly.
Though corn & soybean price rebound in June15, they are expected to stay low due to increased harvest in North & South America.
Has recent sharp rebound in corn & soybean price affected investors' sentiment in Teoseng? I don't know.
Another potential culprit might be chicken egg price.
Teoseng currently produces about 3.2 million eggs per day. If egg price increases by 1sen, its revenue will potentially increase by RM32,000 a day, or RM2.88mil in a quarter.
If other cost & parameters remain the same, this extra RM2.88mil a quarter will go towards its PBT.
In other words, if egg price increases by 1sen, Teoseng can potentially earn RM2.88mil more in its pre-tax profit.
But if egg price drops 1sen, then Teoseng may potentially earn RM2.88mil less.
If egg price drop by 10sen, does it mean that Teoseng's profit will potentially drop RM28.8mil in a quarter which will throw it into loss???
Of course things are not that straight forward. Egg price fluctuates every few days and there are many other reasons that can affect its profit.