Some of our friends requested for analysis on Teoseng (7252) due to the heavy sell down recently by the directors. Many were stuck as the price dropped significantly after posting a great quarter results. Many bought in due to the great quarter results and the euphoria of chicken stocks due to the listing of Leong Hup (LHI) IPO. Teoseng is a subsidiary of Leong Hup whereby LHI has approximately 28.4% ownership as of 2018.
Teo Seng Capital Bhd engages in poultry farming business. The company operates through Investment Holding; Trading of Pet Food, Medicine, and Other Related Products; and Poultry Farming segments. It produces eggs. The firm also manufactures and markets paper egg trays and animal feeds, as well as distribute food, medicine, and other health products. In addition, it trades in and generates energy through the establishment of biogas plants; and is involved in the wholesale, import, and export of eggs products. Further, the firm provides waste management and cool room services. It also produces, processes, preserves, and wholesales meat and meat related products; and engages in the fertilizer and agriculture businesses. The firm earns most of its revenue from Poultry Farming segment.
In terms of its financial performance, Teoseng reported an impressive Q1`19 performance (Image 1) which led to the euphoria of chasing the particular stocks. Questions arises of why would the directors sell down the shares of Teoseng if the performance is good? No one knows exactly and I do not know either. What we can see from Image 1 is that Q2 tends to have lower performance historically for the last two years. There is so many possibilities / speculations of what is going on. On top of that, there are lots of chicken and eggs (poultry) listed businesses on KLSE which makes it a tough competition out there. These are control items in Malaysia and one can follow the price which is published here: http://flfam.org.my/
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| Image 1: Teoseng Quarterly Financial Performance |
As the nature of the business is seasonal/cyclical plus with control items, cost play an important role on top of demand and supply. Teoseng's cost of good sold (COGS) is pretty good whereby it is less than 70%. Typical throughput time for layer hens (for eggs) reproduction to start producing eggs is about 6 months while broiler (for meat) is about 5 to 6 weeks. Eggs shelf life is about 5 to 6 weeks if it is properly refrigerated. The fundamentals for Teoseng looks good and if you are planning to hold it for longer time, you will have to average down at some point. If you are trading for continuous good Q2'19 report out after good Q1'19, there seems to be a risk that needs to be managed moving forward as the chicken eggs price has dropped approximately 4 cents during the Raya festive season (~one month locked down price) compared to CNY festive season in Q1 (~10 days locked down price). Q4'18 and Q1'19 eggs price is much higher compared to the price in May and Jun as found in the link above. Hence, there is a possibility that it will report lower earnings compared to Q1'19.
Technically, there is possibility that complex head and shoulder top formations is building up as shown in Image 2. The formations has yet to be completed though with left shoulder and head formed (red dots). Confirmations of the pattern is required and as such, the rebound from $1.02 should move towards the $1.18-$1.23 region (blue dot). Upon reversal at that level, the price will naturally move lower thereafter. A downward slopping head and shoulder top formations indicates weakness in the share price. This could be due to the underlying fundamentals of chickens and eggs price. One thing to note is that such formation requires time to build.
In my opinion, below are the strategies that can be used:
Technically, there is possibility that complex head and shoulder top formations is building up as shown in Image 2. The formations has yet to be completed though with left shoulder and head formed (red dots). Confirmations of the pattern is required and as such, the rebound from $1.02 should move towards the $1.18-$1.23 region (blue dot). Upon reversal at that level, the price will naturally move lower thereafter. A downward slopping head and shoulder top formations indicates weakness in the share price. This could be due to the underlying fundamentals of chickens and eggs price. One thing to note is that such formation requires time to build.
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| Image 2: Teoseng price actions indicating possible head and shoulder top formation |
- If your original plan is to invest in Teoseng for long term
- Observe the price actions for the next few weeks
- If it can reach the blue dot levels, you can either choose to reduce some position first and reenter at lower price; or do nothing about it
- A good entry to average down will be between $0.72 cents and $0.86 cents
- Do monitor the chicken and eggs price from the link I shared above
- If your original plan is to trade Teoseng and you are stuck now
- Observe the price actions for the next few weeks
- If it can reach the blue dot levels, you can either choose to reduce some position if it is profitable or exit the position with smaller gains.
- You can choose to trade between the levels shared above and using risk/reward ratio.
Good luck and all the best!!!
Disclosure: The information above is for sharing purposes without any understanding of investment targets and needs of readers. References to the price movements is informational based on my analysis and data obtained from sources believed to be reliable at the point of writing. Please do your own due diligence as this article is not a recommendation to buy/sell.
