Saturday 10 January 2015

Poultry Farming & Listed Companies In Malaysia

After struggling in year 2012, many poultry farming companies finally caught investors' eyes by producing much better earnings since the start of year 2014.

As a result, most of their share prices have gone up about 50% and some more than 100% in just one year time, outperforming the unfortunate KLCI by several streets.

Is it too late to join the poultry party now? Are those poultry farming companies still undervalued after the jump in share price?

I have found 9 listed companies involved in poultry farming and related business. I'll just do a simple comparison among them.

Not every company runs exactly the same business. Some rear chicken only for its meat (broiler), some only for its eggs (layer), some slaughter the chicken, some process the meat to nuggets etc (food).

Some companies also venture into related businesses such as marine food, chicken feeds, making fertilizer from chicken manure, manufacturing egg trays and trading animal health products.

Below are main business for the 9 listed companies

Company Business
QL Broiler, Layer, Feeds, Marine, Palm Oil
Huat Lai Broiler, Layer, Feeds, Fertilizer, Trays
CAB Broiler, Food, Marine, Retail
Lay Hong Broiler, Layer, Food, Supermarket
Farmbes Broiler, Layer, Food, Property
PW Broiler, Layer, Feeds, Cattle, Food
Teo Seng Layer, Feeds, Trays, Animal food & health products
LTKM Layer, Sand mining, Property
TPC Layer

Looking into their historical financial results, almost all except QL and may be Teoseng, have rather "choppy" performance in which net profit swing up & down despite consistently higher revenue every year.

Due to company expansion and inflation, we would expect revenue to go up consistently. So the fluctuating net profit must be due to fluctuating cost.

For pure broiler and/or layer farming, chicken feeds make up 70-75% of its cost of sales. So market price of corn and soybean which are used as chicken feeds will have a big impact on the company's performance.

Other than increase in poultry & eggs selling price, significant reduction in corn and soybean price since 2013 has largely improved the earnings of poultry farming operators.

Charts below show 10-year historical corn & soybean price.

As we can see from the charts above, corn & soybean price have dropped about 50% from their peak in 2012, mainly due to overproduction in the US.

From 2010, corn price rose steeply for almost 100% in less than a year, while soybean price also rose about 50% in the same period. Both stayed at high level throughout 2011-2012.

This may explain why most poultry farming companies suffered loss (except QL, Teo Seng & PW) or lower profit (Teoseng & PW) in calendar year 2012.

Now the corn & soybean price have suddenly dropped to about 8-year low. Do you think it will continue to drop to its 10-year low, or rebound, or move sideways in 2015?

From history, it can rise as fast as it falls.

Nevertheless, I think no one can be sure but surely it will have a great impact on poultry farmers' earning.

Among those 9 poultry-related companies, which one is the best to invest in?

I will use annualized figures to calculate the EPS to better reflect each company's latest performance, as I predict most of them will release even better results in the final quarter of CY2014 due to even lower feed price in the 2nd half of 2014.

So, this analysis which uses annualized earnings (except CAB), will not be very accurate.

QL Mac 2620 176.4 6.7 13.6 1.76 0.44
Huat Lai Dec 1222 44.6 3.6 20.5 0.58 2.44
CAB Sep 672 11.2 1.7 6.5 0.73 0.61
Lay Hong Mac 646 15.7 2.4 12.3 0.83 1.38
Farmbes Dec 432 2.7 0.6 2.8 1.15 2.74
Teo Seng Dec 363 40.9 11.3 27.2 1.12 0.26
PW Dec 287 14.1 4.9 6.5 0.88 0.40
LTKM Mac 187 29.7 15.9 16.9 2.40 NC
TPC Dec 79 3.8 4.8 20.1 0.41 2.25
NC = net cash
CR = current ratio

QL is the largest among all in term of market cap, revenue and net profit, with its diversification in businesses and also geographical location. 

QL has been holding a significant stake in Lay Hong since 2010. It currently owns 38.3% of Lay Hong and recently failed in a rather hostile takeover bid to acquire Lay Hong.

Teo Seng is a subsidiary of Leong Hup which was recently taken private and delisted in 2012. Leong Hup is the country's largest integrated poultry operator.

TPC which is currently a PN17 company, is a 52.91% subsidiary of Huat Lai since 2012.

Meanwhile, Farmbes recently appears as a subject of a RM380mil reverse takeover by Chinese-owned SHH (M) Holding Sdn Bhd.

US-owned Cargill Malaysia is reported to be keen on a controlling stake in CAB as well.

It seems like merger & acquisition activities are robust within the poultry industry.

Other than CAB, PW & Farmbes, all other companies' ROE are good at above 10%, especially Teo Seng, Huat Lai & TPC which are above 20%, thanks to recent lower feeds price.

It's noteworthy that Teo Seng and LTKM's net profit margin stand out from the rest at more than 10%.

In term of balance sheet, it looks like poultry farming is a capital intensive business as many companies are heavily debt-ridden.

Huat Lai, Farmbes & TPC all have net debt to equity ratio of above 2x while Lay Hong is at 1.38. Only LTKM manage to keep a net cash position with impressive current ratio.

From the table above, generally the more "investable" ones to me are QL, Teo Seng & LTKM. CAB & PW are not that attractive due to thin margin and low ROE, besides higher borrowings.

Stock Price #EPS PE NAS PB DIV DY%
QL 3.26 14.1 23.1 1.04 3.1 3.5 1.1
Huat Lai 2.85 51.6 5.5 2.52 1.1 4 1.4
CAB 1.01 8.5 11.9 1.16 0.9 0 0
Lay Hong 3.42 31.0 11.0 2.55 1.3 5 1.5
Farmbes 0.60 4.4 13.6 1.55 0.4 0 0
Teo Seng 1.85 20.4 9.1 0.75 2.5 *10 5.4
PW 1.52 23.1 6.6 3.71 0.4 5 3.3
LTKM 4.09 68.4 6.0 4.05 1.0 18 4.4
TPC 0.385 4.8 8.0 0.24 1.6 0 0
* may have more dividends
# base on annualized earnings

QL is no doubt a great company but its PE ratio and PB ratio are too high now.

Though Huat Lai has lowest PE, relatively low PB ratio and high ROE of 20.5, it also has scary amount of debts and very low current ratio.

Apart from Huat Lai, LTKM & PW have the lowest PE at 6.0x & 6.6x respectively, while both Farmbes & PW have the lowest PB at 0.4x. 

Teo Seng's dividend is the most attractive, followed by LTKM and PW. It is a little surprise to me that Huat Lai still pay dividend.

So it is not difficult to come to a conclusion that Teo Seng & LTKM are the two companies that suit my investment style.

Coincidentally, both are only in layer farming without broiler farming. Both export their eggs to Singapore as well.

Though Teo Seng is valued higher compared to LTKM now, LTKM seems too conservative in expanding its poultry business compared to Teo Seng.

LTKM who already built 26 units of terrace houses in Banting since 2011 even plans to go bigger into property development with its 20-acre land in Jenjarom!

Anyway, I think both are still not bad to invest in, depending on your taste & timing. 

For me, I don't know much about their future expansion plan but it seems like organic growth will be slow.

Besides Teo Seng & LTKM, PW is also worth a second look.

It just made its first venture into table eggs production since 2013 with its new layer farm at Pendang, Kedah.

From its FY13 annual report, PW mentioned that it was developing the 2nd phase of its layer farm which was expected to be completed by early 2015. This will double its daily capacity from 420,000 to 850,000 eggs.

Thus, even with lowish ROE at 6.5%, PW can be a dark horse with very low projected PE & PB ratio, along with satisfactory dividend yield.

Anyway, its tight balance sheet & cash flow remain a risk.

We can assume confidently that chicken & eggs price will only rise in the future. However, cost of energy, raw material and man power will rise as well.

I think corn and soybean price are particularly important to poultry industry, as it can fluctuate so much as shown earlier.

If corn & soybean price are to rebound furiously just like it happened in 2010, those companies' financial results will not be that pretty I guess.

Furthermore, if the raw materials for chicken feeds are imported in USD, recent weakening of RM against USD might add more pressure if corn & soybean price also go up later.

Anyway, I think investors can still anticipate good financial results from poultry operators for year 2015 at least.

As usual, investors need to study those companies in more detail. Invest at own risk.


  1. another company is PW Consolidated

  2. I only studied Lay Hong, Teo Seng and LTKM

    I not so fancy of Lay Hong's diversification into supermarket and food processing. Seem like a very bad move for them especially the supermarket who only fetch less than 1% operating profit margin after few years of operation.

    LTKM berhad also tried diversified into other business. They started sand mining operation in 2008 and seem like still suffering until today. They started glass processing in FY2010 but decided to cease the operation in FY2012, eroded the gains contributed by the poultry business. Then, they started to do property investment in FY2013. Not sure it's one time off or not.

    Teo Seng is better in diversification. Paper products, Feedmill segment, fertilizer conversion and biogas plant all will help to reduce its operating cost in poultry operation. Perhaps, the market rate it higher. (Also helped by better dividend payout and bonus issue). But I think is roughly in the fully valued region as I think the market will not rate cyclic business too high.

    If only based of fundamental, I will choose LTKM currently based on its lower valuation. Cash flow and balance sheet also stronger.

    1. I prefer LTKM too! Its sand mining site at Jasin was earlier purchased to expand its poultry business, but faced opposition from nearby residents. It also said that it will go bigger into property development. I like its huge centralized farms in one location, but not sure how much space left for future expansion. It has a safe and steady operation, may be it's waiting for the next economy crisis!

      Anyway, I wish I started to analyse poultry industry a year earlier. Now it seems too late...

  3. Good job for the analysis. Hopefully can find a good entry price for Teoseng or LTKM also.

    1. Thanks Ah Seng. Ya, I'll wait for the next panic sell to consider.

  4. Detailed write up! But you missed DBE Gurney. Could you add in the analysis of the company?

    1. Thanks for the info. I'll add in later when more free :)

  5. Thank you for the article ..very informative. I was looking to understand poultry and came across your article. Good work.


    1. Thanks Ongmali. I just shared my research and what I know. I'm glad it helps :)

  6. Very impressive stuff indeed! Kudos!

  7. Anyone interested to start a poultry farm and looking for a piece of land , this is an opportunity to fetch my land at RM200k per acre , total 19 acres in Ulu Selangor. My neighbouring lot was bought by KL Kepong and starting a high tech poultry farm this April. My tel 012 222 9064/ 016 997 6310 I prefer sms. TQ

  8. Anyone interested to start a poultry farm and looking for a piece of land , this is an opportunity to fetch my land at RM200k per acre , total 19 acres in Ulu Selangor. My neighbouring lot was bought by KL Kepong and starting a high tech poultry farm this April. My tel 012 222 9064/ 016 997 6310 I prefer sms. TQ

  9. Very well written analysis & report. Thanks for the hard works, it's still relevant as at todate. This is the beauty of having website.

  10. Good job Bursa Dummy! I was trying to find poultry players in Malaysia and this is really a damn good insight.. pls keep it up for the good works! Tqvm

  11. are you able to please give me the list of poultry companies in Malaysia? and then also egg companies in Malaysia? this article was very helpful.

    1. Hi. Those companies are in this article above right?

  12. Hi, I think u missed out CCK (7035) which operate in east Malaysia. Does it be the company you might consider. Lately they have a lot of share buy back hence I took some time to review the company (

    I personally think these company is overvalue and not suitable for my investment style (value investor). How do you think about the company?