SINGAPORE (March 24): Positive investor sentiment continues to hold up. This past week, the Straits Times Index gained 0.5%. Our Singapore Market Portfolio did even better, rising 1.2%. Leading the gainers was egg producer Chew’s Group. The counter rose 11.8% from March 14 to 21, to close at 43 cents a share. So far this year, its shares are up 34.9%. Since we added the stock to our portfolio, it has risen 30.8%.

Despite its stellar run, we are keeping the counter in our portfolio for now. For FY2016 ended Sept 30, Chew’s reported earnings of 33 cents per share. That means the stock currently trades at just 1.3 times its historical earnings. However, the company’s earnings were inflated by a $24.4 million gain on the disposal of property to the government. Chew’s is relocating its farm as part of a government exercise. Stripping out this gain, Chew’s earnings would be $2 million — roughly unchanged y-o-y. The stock is now trading at 18 times that adjusted earnings figure.

While Chew’s is currently trading at a seemingly high historical earnings multiple, the company appears to be laying the foundations of what could be an interesting growth phase. First, the company is designing a new farm to be located on a 20ha site on Neo Tiew Road. When completed, Chew’s will be able to expand its capacity significantly. Second, the company has completed a chicken soup factory and packaging line, and now has its own consumer brand of chicken soup that is being carried by a supermarket chain. According to Chew’s annual report, the company is in negotiations to expand its distribution channels via other supermarkets and hypermarkets.

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