AmWatch - Teo Seng Capital : A strong start to FY15 BUY, 19 May 2015

STOCK FOCUS OF THE DAY

Teo Seng Capital : A strong start to FY15                BUY

We reaffirm BUY on Teo Seng Capital (TSC) with an unchanged fair value of RM2.70/share. This is based on an unchanged fully-diluted FY15F PE of 13x. TSC reported revenue of RM112.6mil and net profit of RM17.4mil for its 1QFY15. The results met 25% of our full-year FY15F earnings estimate of RM70mil. The group’s 1QFY15 earnings had surged by a commendable 70% YoY on the back of a 30% rise in revenue. The improved performance can be mainly attributed to the availability of new production capacity following the addition of a new farm (~400,000 eggs/day) at end-FY14 as well as higher egg selling prices.

Sequentially, TSC’s net profit had slipped by 3% although its revenue had increased by 4% (in tandem with the higher sales volume and stable ASP). We are however, not too concerned as the decline was mainly due to 1QFY15’s higher tax rate. TSC’s PBT was higher by 8% QoQ. No dividends were announced this quarter. At the current price, our FY15F-FY17F gross DPS forecasts (based on payout ratios of 25%-35%) translate into attractive yields of 3% to 5%.

We expect TSC to register sequentially softer earnings in 2QFY15 due to the seasonality effect and to a smaller extent, the impact of GST on overall consumer sentiment. That said, we are confident of its earnings picking up in 2HFY15 (as per its historical trend) in view of strong demand during the festive periods and addition of a new farm. We also expect the group’s EBITDA margins to continue expanding (QoQ: +1ppts; YoY: +5ppts), buoyed in part by the soft commodity prices. We understand that its biogas plant-ups are progressing well, with the first (of five) plant on schedule for completion this year (savings of up to RM2mil p.a.). The construction of its new feedmill plant and installation of new paper tray machine are also going on as planned. The stock is presently trading at an undemanding fully-diluted forward PE of only 9x – half the sector’s average of 18x.

Others :

Cocoaland Holdings : Export sales to anchor growth         BUY

Construction Sector : Bottom-up opportunities from 11MP          OVERWEIGHT

QUICK TAKES

Sarawak Cable : S’wak to proceed with RM4bil Baram dam           BUY

Water Sector : Azmin and Ongkili to meet this week        NEUTRAL

NEWS HIGHLIGHTS

Malayan Banking : Maybank sells ops in PNG for RM418mil

Oil & Gas Sector : New target for Rapid project aimed at lower cost of US$89bil

Property Sector : Hua Yang plans RM800mil property project in KL

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.