Teo Seng Capital Berhad's ROCE Trajectory and Its Implications for Shareholder Value

The Return on Capital Employed (ROCE) of Teo Seng Capital Berhad has been a rollercoaster ride over the past decade, reflecting both the company's operational resilience and the volatility of the poultry industry. From a modest 10.94% in 2018 to a striking 32.66% in 2023, the firm's ROCE trajectory underscores its ability to adapt to shifting market conditions. Yet, the question remains: Can this performance be sustained in a sector prone to external shocks such as government subsidies, feed cost fluctuations, and tax policy changes? For investors, the answer hinges on whether Teo Seng's strategic initiatives and operational efficiencies can stabilize returns while navigating these headwinds.

A Volatile ROCE: Drivers and Patterns

Teo Seng's ROCE has oscillated dramatically, from a low of 0.98% in 2021 to a peak of 32.66% in 2023. This volatility is partly attributable to the company's exposure to government subsidies. For instance, in Q2 2025, net profit surged by 60% year-on-year, driven by USD 8.81 million in egg subsidies. However, when subsidies were fully withdrawn in August 2025, net profit halved in Q3 2025, illustrating the fragility of earnings tied to policy shifts.

The company's quarterly ROCE data further highlights this instability. While 2023 saw a steady climb from 5.5% in Q1 to 14.0% in Q4, 2025's figures have been more erratic, dropping to 3.6% in Q3 2025. This suggests that while Teo Seng can generate strong returns in favorable conditions, its ability to maintain consistent performance remains uncertain.

Strategic Initiatives and Operational Resilience

To mitigate volatility, Teo Seng has pursued aggressive capital management and diversification. In late 2025, the company executed a share buyback program, repurchasing 674,000 shares at an average price of 0.97 MYR. This move not only signaled confidence in its intrinsic value but also reduced the share count, potentially boosting earnings per share.

Operationally, the firm has focused on cost efficiency and vertical integration. Feed costs, which account for 75% of production expenses, have eased due to lower ocean freight and logistics costs. Management has also invested in downstream value-added products, such as Old Hen Chicken Soup and Liquid Eggs, to diversify revenue streams and reduce reliance on raw egg sales. These initiatives aim to stabilize cash flows and insulate the business from commodity price swings.

Industry Challenges and Long-Term Outlook

Despite these efforts, Teo Seng faces structural challenges. The expansion of Malaysia's SST in 2025 is expected to increase operating costs across the poultry sector. Additionally, while feed costs have declined from peak levels in 2024, any resurgence in input prices could erode margins.

However, the company's long-term prospects remain cautiously optimistic. Malaysia's egg consumption is projected to grow through 2028, driven by population expansion and rising retail demand. Teo Seng's vertically integrated operations and dominant market position-supplying 30% of Malaysia's table eggs-position it to capitalize on this trend. Moreover, its foray into international markets, such as Japan and the Middle East, could provide new revenue avenues.

Shareholder Value and ROCE Sustainability

For shareholders, the sustainability of Teo Seng's ROCE is critical. A ROCE of 24.9% in 2024 and 32.66% in 2023 suggests strong capital efficiency, but these figures were partly fueled by one-time subsidy gains. Post-subsidy, the company's PAT margins are expected to normalize around 5.5%, a level that, while modest, remains competitive in the sector.

The share buyback program further underscores management's commitment to enhancing shareholder value. By repurchasing undervalued shares, Teo Seng is effectively returning capital to investors while signaling confidence in its long-term profitability. However, the success of this strategy depends on the company's ability to maintain profitability amid rising SST and potential feed cost pressures.

Conclusion

Teo Seng Capital Berhad's ROCE trajectory reflects a mix of strategic agility and industry vulnerability. While its ability to generate high returns in favorable conditions is evident, the sustainability of these returns hinges on its capacity to navigate policy shifts, cost fluctuations, and competitive pressures. For now, the company's diversified product portfolio, cost efficiencies, and market leadership offer a degree of resilience. Yet, investors must remain cautious: in a sector as volatile as poultry, even the most robust strategies can falter without consistent execution.