KUAL A LUMPUR: AmResearch has initiated coverage on Teo Seng Capital with a Buy call and a fair value of RM2.40/share, based on a fully-diluted PE of 13 times on FY15F earnings.
TSC is a Shariah-compliant stock. TSC is a well-managed modern poultry farmer focusing primarily on the production of eggs.
With a daily output of 3.1mil eggs, it is the third largest egg producer in Malaysia. About one-third of its production is exported to Singapore.
AmResearch said its investment thesis is built around TSC's Favourable industry dynamics with stable growth of 3%-5% per annum.
Also, TSC has first pick of the top layer breeds, which ensures the quality of its eggs. TSC’s earnings CAGR of 35% over the last three years is a testament to its management expertise.
The research house said it forecast TSC's earnings to expand by 16%-26% over FY15F-FY17F, underpinned by production capacity expansion (+400,000 eggs/day p.a. to 5.1mil eggs/day in five years) and steady demand growth.
"Operating margins are expected to remain intact at about 20%, thanks to soft commodity prices. The addition of biogas plants would also help lower operating costs," it said.
However, AmResearch noted that TSC lacks an institutional following as it is presently under-researched.
"We believe that this would change given improved corporate access, steady earnings and dividend track record," it said.
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