Investment Highlights

• We maintain HOLD on PPB Group with a higher fair value of RM20.45/share vs. RM20.30/share previously. Our fair value of RM20.45/share is based on an FY21F PE of 22x. We have raised PPB’s FY21F net profit marginally to account for Wilmar’s higher net profit of RM1.5bil vs. RM1.4bil originally. However, we have also forecast a pretax loss of RM55.0mil for the film exhibition and distribution division in FY21F vs. a pre-tax profit of RM44.5mil previously.

• PPB’s FY20 net profit of RM1.3bil was within our forecast and consensus estimates. Although Wilmar International’s net profit exceeded expectations, PPB’s net earnings met our forecast as the pre-tax loss of the film exhibition and distribution division was bigger than anticipated.

• The film exhibition and distribution division recorded a pre-tax loss of RM122.5mil in FY20 vs. a pre-tax profit of RM65.3mil in FY19 due to the closure of cinemas during the MCO period. Pre-tax loss of the division widened to RM43.3mil in 4QFY20 from RM24.6mil in 3QFY20.

• On a positive note, PPB has declared a final and special DPS of 38.0 sen for 4QFY20, which brings total gross DPS to 46.0 sen for FY20. The gross DPS of 46.0 sen for FY20 translates into a dividend yield of 2.5%.

• PPB’s net profit rose by 14.3% to RM1.3bil in FY20, underpinned mostly by a 29.2% increase in the share of associates’ net profit (mainly 18.4%-owned Wilmar International). Share of net profit in associates accounted for 94.5% of PPB’s FY20 pre-tax profit.

• Apart from Wilmar, PPB’s associates comprise a 20% stake in the flour mills in China and a 40% stake in Galaxy Studio Joint Stock Company in Vietnam.

• PPB’s grains and agribusiness (flour, feedmilling and trading) division recorded a larger pre-tax profit of RM161.8mil in FY20 vs. RM135.2mil in FY19. The increase in the segment’s pre-tax profit in FY20 was driven by higher demand for flour products and timely purchases of feedstock. The division’s pre-tax profit margin rose to 4.9% in FY20 from 4.1% in FY19.

• Pre-tax profit of the consumer products division climbed to RM32.4mil in FY20 from RM6.4mil in FY19 on the back of a one-off gain of RM21mil on the step acquisition of an associate and higher sales volume of bread and frozen food products. EBIT margin of the division expanded to 5.2% in FY20 from 1.0% in FY19. A step acquisition occurs when an entity acquires control over another unit, in which it already holds a stake.

Source: AmInvest Research - 26 Feb 2021