Teo Seng earnings set to recover as egg prices improve

KUALA LUMPUR: Teo Seng Capital Bhd is expected to see a gradual recovery in earnings as egg prices improve, although the pace will depend on sustained price normalisation and favourable input costs.

Public Investment Bank Bhd (PublicInvest) said early signs of an egg price recovery were emerging, supported by tighter supply following farm closures and adverse weather conditions, while relatively inelastic demand should provide some earnings stability.

It said the egg market was gradually returning to equilibrium following the removal of government subsidies, with some layer farms exiting the industry as they were unable to convert from open-air to closed-house systems.

"Challenging weather conditions, including high temperatures and haze-related air pollution, have also reduced egg size and production volumes.

"We expect egg supply in the coming quarter to be lower, with a higher proportion of smaller-sized eggs, providing some near-term price support, although the magnitude and duration remain uncertain," it said in a note.

PublicInvest said the recovery could be offset by higher feed costs, with wheat and soymeal accounting for about 70 per cent of egg production costs.

"The risk of an El Niño-driven spike in wheat and soymeal prices remains a key downside risk and could offset any benefit from higher egg prices," it added.

Following a recent meeting with Teo Seng's management, PublicInvest raised its earnings forecasts for financial years 2026 (FY26) to FY28 by an average of 29 per cent, reflecting expectations of recovering egg prices.

The firm also expects the group's higher-margin animal health segment to support net profit and partly cushion the cyclical nature of its poultry business.

It upgraded Teo Seng to "Neutral" from "Underperform" and raised its target price to 81 sen, based on a higher valuation multiple of seven times FY27 forecast earnings per share, compared with five times previously.

PublicInvest said Malaysia's egg market had historically fluctuated between periods of oversupply and shortage, from a Covid-19-induced glut in 2020 that drove farm-gate prices down 38 per cent to a shortage in 2022 and a return to oversupply in 2026.

It said egg production reached 16.7 billion eggs, compared with annual consumption of about 11.6 billion, following the removal of subsidies in August 2025.

High temperatures and haze-related air pollution had also affected production efficiency, with birds exposed to higher pollution levels experiencing poorer respiratory health, weaker immunity and lower egg production.

"While the worst appears to be over, we believe the tighter supply environment and improving egg prices should support Teo Seng's earnings trajectory," PublicInvest said.