TEOSENG: Poultry Producer Poised for Growth as Operational Efficiencies Drive Earnings, Target Price Raised

A leading poultry producer has demonstrated robust financial performance, driven by significant operational efficiencies and strategic cost management. Despite anticipated near-term headwinds from the removal of government subsidies, analysts are optimistic about the company’s long-term growth trajectory, leading to a revised positive outlook.

Performance Review

The company delivered an impressive 157% compound annual growth rate (CAGR) in earnings from FY20 to FY24, a period marked by improved operational efficiencies and the benefit of government grants. More recently, the first half of FY25 saw core net profit jump by a substantial 59% year-on-year to RM83.1 million. This strong profitability was achieved despite a 7.4% year-on-year decline in revenue, primarily due to softer average selling prices for eggs during the period.

Key drivers behind this performance include a significant increase in daily egg production capacity, coupled with a strategic shift towards higher-margin premium eggs, which now constitute a larger portion of the product mix. The company’s continuous investments in upgrading its layer farms to closed-house systems and implementing automation in egg collection and grading have further optimized productivity and reduced labour dependency. Additionally, favourable foreign exchange rates contributed to lower imported feed costs, enhancing overall margins.

Challenges and Future Outlook

Looking ahead, the company faces the challenge of the government’s complete removal of egg subsidies, effective August 1, 2025. This is projected to lead to an average 20% contraction in earnings for FY25-26 as the full impact of subsidy removal is absorbed.

However, the long-term outlook remains positive. Analysts anticipate a 5% year-on-year earnings recovery in FY27, underpinned by robust egg demand in Malaysia and Singapore due to steady population growth. The company’s ongoing initiatives to boost operational efficiency, expand direct sales channels, and broaden its downstream portfolio with more value-added products, such as processed eggs and the upcoming slaughtering plant slated for commissioning in 4QFY25, are expected to drive future margin expansion. Furthermore, a stable supply outlook suggests that raw material prices for maize and soybean meal could remain soft, and a potential depreciation of the US dollar could further ease input costs.

Investment Perspective

Given the company’s established market leadership, strong track record of operational improvements, and strategic expansion plans, it is well-positioned for sustained growth beyond the immediate impact of subsidy removal. The proactive measures to enhance efficiency and diversify its product offerings are expected to mitigate challenges and capitalise on increasing regional demand for poultry products, justifying the positive recommendation and revised target price.