TEOSENG: Earnings Exceed Expectations on Cost Efficiencies, Target Price Raised

The company’s 9MFY25 financial results have exceeded analyst expectations, primarily driven by a robust sales performance and significant cost efficiencies. The third quarter of FY25 marked its strongest sales period since the pandemic, signaling a healthy recovery in general consumption and prompting an upward revision in earnings forecasts and target price.

Performance Review

For the nine months ending FY25, core net profit accounted for 83% of the full-year forecast, outperforming projections. Quarter-on-quarter, 3QFY25 revenue climbed 17.6% to RM201.5 million from RM171.4 million in 2QFY25. This increase was attributed to higher egg sales volume and improved contribution from the animal health products segment. Operationally, the company demonstrated strong cost discipline, with operating expenditure (OPEX) falling 25.8% quarter-on-quarter, which led to a 6 percentage point improvement in margins to 12.8%, indicating ongoing cost efficiency.

However, the year-on-year performance for 9MFY25 showed a 4.2% dip in revenue to RM541.5 million, primarily due to a 5.8% contraction in the poultry farming segment’s contribution, impacted by weaker average selling prices for eggs. Core net profit for the nine-month period also decreased 8.4% to RM108.6 million, largely due to significantly higher OPEX totaling RM81.1 million, compared to RM46.3 million in 9MFY24. The quarter-on-quarter decline in pre-tax profit and core net profit was influenced by a reduction in egg subsidy from the government and higher tax expenses.

Operational Focus and Outlook

Management remains cautiously optimistic regarding the future outlook. Resilient demand for eggs is expected to continue supporting core layer-farming operations, even with the removal of blanket egg subsidies from August 1, 2025. The group anticipates that the impact of this subsidy removal will be manageable, supported by stable feed prices, consistent egg demand, and ongoing efficiency improvements across its operations. Capacity expansion and operational excellence are highlighted as key strategic priorities, backed by a strong balance sheet and a sustainability-led management approach. Despite these positives, management acknowledges that softer average selling prices for eggs remain a key concern.

Reflecting the stronger performance and positive outlook, analysts have revised their FY25E/FY26E earnings upwards by 4% and 16% respectively. These revisions account for anticipated stronger top lines in FY25E, an expected 15 percentage point improvement in average selling prices in FY26E due to market normalisation, and a projected 3 percentage point reduction in Opex margins to 15% by FY26E, signifying enhanced operational efficiency.

Investment Recommendation

An investment bank maintains a BUY recommendation on the stock, with a target price of RM0.25, indicating a 25.0% upside from its last traded price of RM0.20.