TEOSENG: Core Earnings Dip Amid Subsidy Removal, Challenging Outlook Ahead

A major poultry farming and egg distribution company reported a significant decline in its third-quarter core net profit, primarily attributed to the reduction in government egg subsidies. While revenue saw modest growth, the complete removal of subsidies from August 2025 is expected to weigh on future earnings, leading to a cautious outlook from analysts.

Performance Review

For the third quarter of fiscal year 2025 (3QFY25), the company’s core profit after tax and minority interests (PATAMI) decreased by a substantial 53% year-on-year to RM25.1 million. This decline occurred despite a 5.9% year-on-year increase in revenue, which reached RM201.5 million. The revenue growth was primarily driven by improved performance in the poultry farming division, which recorded a 6.1% year-on-year increase in sales volume, complemented by a 4.9% rise in the trading division due to higher demand for animal health products. The significant drop in core PATAMI was largely a consequence of receiving approximately RM11 million in government subsidies in 3QFY25, a stark contrast to the estimated RM37 million received in 3QFY24. This reduction followed the government’s decision to halve the egg subsidy from 10 sen to 5 sen per egg on May 1, 2025, with a full removal effective from August 1, 2025.

Future Outlook and Challenges

Analysts deem the 3QFY25 results to be slightly below expectations, anticipating weaker earnings in 4QFY25 following the full cessation of government subsidies. Consequently, earnings forecasts for FY25-27F have been cut by an average of 6%. The group’s earnings are now projected to decline by an average of 22% for FY25-26F, as performance normalizes from the high base set in FY24. An 8% recovery is anticipated in FY27F, underpinned by an expected rise in egg demand.

Strategic Responses

To mitigate the impact of the subsidy removal and ensure long-term sustainability, the company is focusing on several strategic initiatives. These include enhancing production efficiency, benefiting from softer feed costs, and capitalizing on rising egg demand. Furthermore, the group is actively diversifying into higher-margin products, such as liquid eggs and hard-boiled eggs. Efforts are also underway to reduce reliance on third-party distributors by increasing the proportion of direct sales, which is estimated to generate cost savings of 2-3 sen per egg.

Analyst’s View

PublicInvest Research has maintained its “Neutral” call on the stock, revising its 12-month target price downwards to RM0.98. This new target price is based on a 5x price-to-earnings multiple of its forecasted FY26F earnings per share.