When Will The Egg Hatch?

The key to everything is patience. You get the chicken by hatching the egg, not by smashing it. Arnold H. Glasow

It appears there is a recent oversold position in one of the  Malaysian-listed poultry stocks, Teo Seng Capital Berhad (TSCB). Is the oversold position justified?

TSCB recently reported its quarterly results, which saw a decline in profit for the quarter:

TSCB (Q3_results).png

For approx. 299 million ordinary shares, estimated annualised EPS is approx. MYR0.084 per share for FYE2016. The company expects the remaining 3 months of FYE2016 to be challenging. This could be possibly due to prevailing low selling price of eggs.

tscb-q3_results_2

Technically speaking, TCSB has reached its lower bound of its Bollinger Band. The RSI indicator appears to show that TCSB is currently in an oversold position.

TA_TSCB.png

Fundamentally speaking, TSCB has an average historical price earnings ratio (PER) of 8.12 times (since 2011) which is relatively lower than its current PER of 13.5 times. Assuming a trading PER of 8.12 times and forecast annualised earnings for FYE2016 of MYR0.084 per share, we may be looking at implied target price of approx. RM0.68 per share. If the computation is based on the current PER of 13.5 times, we may be looking at implied target price of approx. RM1.13 per share.

Statistical View 

Current market cap of selected Malaysian-listed egg producers:

TSCB_3.png

Regression of aggregate market cap of all selected egg producers against the exchange rate USDMYR

Key observations:

– positive relationship, as MYR continues to depreciate, the market cap of egg producers is expected to increase

– significant statistical exist. the following graph shows that total actual aggregate market cap of egg producers is relatively lower by 19%  than the predicted aggregrate market cap (potential signal of undervaluation of the selected egg producers based on the relationship derived from this regression)

eggs-vs-usdmyreggs-vs-usdmyr_2

Regression of market cap of TSCB against (i) aggregate market cap of selected egg producers; and (ii) the exchange rate USDMYR

The results of the multiple regression are summarised as follows:

– Significant relationship exists between market cap of TSCB and USDMYR / Market Cap (other egg producers);

Current market cap of TSCB of RM315 mil (RM1.05 per share) is relatively lower than the predicted market cap of TSCB of RM521 mil (RM1.74 per share), with the 95%-confidence interval to be between RM327 mil (RM1.09 per share) and RM715 mil (RM2.39 per share). TSCB is currently trading close to the lower band of the 95%-confidence interval.

tscb-vs-eggs_2tscb-vs-eggs

Will we ever see TSCB “hatching” toward the RM1.74 mark?

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES OR RELATED INSTRUMENTS MENTIONED ABOVE.

Author: Ken Utau

Data Scientist, Markets Analyst and Food Lover

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