Investment Highlights

• We initiate coverage on PPB Group with a HOLD recommendation and fair value of RM20.30/share. Our fair value of RM20.30/share for PPB is based on an FY21F PE of 22x. Although we like PPB for its sound fundamentals, we believe that the group’s PE valuations are fair.
• Our PE assumption of 22x for PPB is 15% lower than the FY21F PEs of 25x to 27x of some of the larger consumer companies in Malaysia (Exhibit 1). We have applied a discount as PPB’s consumer operations are smaller than the likes of F&N Holdings and Dutch Lady Milk Industries.
• We forecast PPB’s gross DPS to increase to 33.0 sen in FY20E from 31.0 sen in FY19 in line with the rise in the group’s net profit. Also, Wilmar International is expected to pay special dividends due to the successful listing of Yihai Kerry Arawana on the Shenzhen Stock Exchange. Bloomberg consensus has forecast Wilmar’s gross DPS to be 12.7 US cents/share in FY20E vs. 9.0 US cents in FY19.
• PPB is a proxy to the recovery in consumer spending in Malaysia. It has a portfolio of consumer staples such as flour and bread, and consumer discretionary products such as cinema. We believe that the film exhibition and distribution division would swing into profitability in FY21F when the Covid-19 pandemic eases in Malaysia.
• PPB also offers an indirect exposure to Wilmar International through its 18.44% shareholding. Wilmar, in turn, offers exposure to the consumer sectors in China and India. This is via Wilmar’s edible oil, rice and flour operations in China and edible oil operations in India. Wilmar’s China operations are mainly carried out by 89.99%-owned Yihai Kerry Arawana Holdings.
• Yihai Kerry is the largest cooking oil producer in China, with a market share of 38.4%. Wilmar’s cooking oil market share in India is about 20%. Wilmar accounts for 85% to 90% of PPB’s annual net profit.
• PPB is a low-beta stock. Hence, it is resilient during times of market volatility. According to Bloomberg, PPB’s fiveyear beta is 0.59, which implies that if the FBM KLCI drops by 10%, PPB’s share price will only fall by 5.9%.

Source: AmInvest Research - 11 Dec 2020