TEOSENG: Strong Cost Management Drives Earnings Above Expectations, Leading to ‘Buy’ Rating

The company has reported its latest financial results, with core PATAMI for the full year ending FY25 coming in above expectations, reaching 105% of full-year estimates, despite a year-on-year decline of 46.5% to RM34.3 million. This performance was primarily impacted by the removal of government egg subsidies, a key headwind during the period.

Performance Review

In the fourth quarter of FY25, revenue saw a modest 3.2% year-on-year increase, totaling RM194.4 million. This growth was largely propelled by an improved performance in the poultry farming division, which expanded by 3.3% year-on-year, supported by robust egg demand. The trading division also contributed positively, with a 2.3% year-on-year revenue increase driven by resilient demand for animal health products. On a quarter-on-quarter basis, however, revenue experienced a 3.6% decline due to lower sales volume.

Despite the year-on-year contraction in core PATAMI for 4QFY25, the quarter-on-quarter performance showed a strong recovery, rising by 36.8%. This rebound was largely attributed to stable feed costs and improved average selling prices within the poultry farming division, effectively cushioning the impact of the subsidy removal and highlighting effective cost management strategies.

Strategic Initiatives and Future Outlook

Looking ahead, the company anticipates a challenging FY26, with earnings expected to contract by approximately 26% as the full impact of the subsidy removal takes effect. However, a significant recovery of 8% is projected for FY27. This recovery is underpinned by several strategic drivers, including a sustained increase in egg demand, supported by steady population growth in Malaysia and Singapore, and the group’s ongoing diversification into higher-margin downstream products, such as liquid and hard-boiled eggs.

Further strengthening the outlook are efforts to reduce reliance on third-party distributors by increasing direct sales, which is expected to generate cost savings of approximately 2-3 sen per egg. The company plans to allocate approximately RM80 million in capital expenditure for FY26 to continue its investment in automation efforts, including automated egg grading and collection machines, aimed at improving production efficiency and cost control. A strengthening ringgit and lower feed costs are also expected to contribute to an uptick in future profit margins.

Given the company’s ability to meet expectations despite significant headwinds, its strategic initiatives for cost efficiencies, and a positive long-term outlook, the investment bank has issued a BUY recommendation with a target price of RM0.25, representing a 25.0% upside from the last traded price of RM0.20.