KUALA LUMPUR: Teo Seng Capital Bhd, the country’s third-largest egg producer by volume after Huat Lai Resources Bhd and QL Resources Bhd, expects per capita egg consumption in Malaysia to grow 3% to 5% this year from the current level of about 36.5 million eggs per day.

Its non-executive director Tan Sri Francis Lau Tuang Nguang said the average price of eggs has remained stable for the past six months at about 35 sen and is projected to remain at this level for the remaining year.

On the back of a stable outlook, he said Teo Seng (fundamental: 1.9; valuation: 2.1) plans to allocate RM200 million for capital expenditure (capex) over the next four to five years to increase its egg production to 5.2 million eggs per day, up 62.5% from the current 3.2 million eggs per day.

The capex will mainly be used to upgrade its automation system, said Lau.

The group is also targeting to increase its market share to 10% in four years from 6.5% presently.

Lau believes this to be achievable, given that the group’s daily output has increased to 3.2 million eggs per day currently from 1.2 million eggs per day five years ago.

About one-third of eggs produced by Teo Seng are exported to Singapore and the group expects to maintain that percentage.

“We want to make sure that we are self-sufficient first,” said Lau. Exports make up about 30% of the group’s revenue.

In tandem with the increase of egg production, Teo Seng’s paper egg tray production would increase by 7,000 per day, said Lau. It manufactures 126,000 egg trays daily currently and about 10% of its egg tray production is sold to customers.

Meanwhile, Teo Seng anticipates to add another eight to 10 pullet and layer farms to its current portfolio. The group currently operates a total of 20 farms in Johor.  

The group will also embark on a new venture to generate electricity from chicken manure through biogas, with a plan to build five biogas plants in the next few years.

The first biogas plant is expected to be built this year, with operations starting in 2016. For each biogas plant, Teo Seng is allocating about RM6 million to RM8 million.

Lau said once in operation, Teo Seng may save up to RM2 million per year on its electricity expenses.

Meanwhile, Lau said there is a possibility for the group to participate in the feed-in-tariff (FiT) programme under the Sustainable Energy Development Authority Malaysia.

He said if the location of the biogas plants is near Tenaga Nasional Bhd’s grid, then it would participate in the FiT programme.

On the recent run-up of Teo Seng’s share price, Lau opined that investors are confident of its solid results registered in its financial year ended December last year.

For its full year ended Dec 31, 2014 (FY14), its net profit more than doubled to RM48.62 million from RM23.42 million in FY13. Revenue rose 15.17% to RM380.93 million from RM330.76 million.

Teo Seng had attributed the higher profit and revenue to better selling prices, coupled with higher egg production and stable feed prices.

Lau said the group’s controlling shareholder does not have any intention to dispose of its business.

In fact, the group is looking to acquire other players if opportunities arise, said Lau. However, it is not in talks with any parties at the moment.

“We want to further develop the businesses and enhance the shareholder’s value,” said Lau.

Agrifood giant QL Resources Bhd had failed to take over another poultry producer Lay Hong Bhd in December last year, after the former was unable to receive more than 50% acceptances from Lay Hong’s shareholders.

Teo Seng has been registering the highest gross profit margin of about 24% in the egg producing industry compared with its peers’ target of 11% to 19%, said Lau. Gross profit margin is used to measure the efficiency of a company.

Since 2009, Teo Seng’s shares have been closely held by Leong Hup (Malaysia) Sdn Bhd and the Nam family, who collectively own a 51.12% stake in Teo Seng through a private vehicle named Advantage Valuations Sdn Bhd.

Leong Hup holds 51% equity interest in Advantage, while the Nam family owns the rest. Lau is also the executive chairman of Leong Hup.

Koperasi Permodalan Felda Malaysia Bhd had disposed of a large chunk of shares in Teo Seng amounting to 15% or 30 million shares on July 23 last year, but it remains a substantial shareholder with a 5.33% stake.

The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Financial Daily, on April 20, 2015.