Investment Highlights

• We maintain HOLD on PPB Group with an unchanged fair value of RM21.05/share. Our fair value is based on a FY21F PE of 22x and a 3% premium for a 4-star ESG rating. PPB is currently trading at FY21F PE of 20.0x and FY22F PE of 17.3x.

• During yesterday’s briefing, PPB did not reveal the details of its acquisition of the MBO chain of cinemas. This was due to a non-disclosure agreement.

• PPB acquired MBO as it believes that the worst is over for the cinema industry. It is also cheaper and faster to acquire brownfield cinemas instead of setting up new ones. The MBO cinemas will be rebranded as GSC, going forward. In Malaysia, cinemas will reopen today at 50% of the seating capacity.

• We forecast smaller pre-tax losses of RM55.0mil for the film exhibition and distribution unit in FY21F compared with RM122.5mil in FY20. GSC’s market share in the domestic box office collections is expected to increase with the acquisition of MBO. In FY19, GSC’s market share of the box office collections in Malaysia was 40%.

• To diversify its revenue stream, the film exhibition and distribution unit plans to launch cafés at selected cinemas and an e-commerce website called Keepsake. The first café will be launched at the GSC cinemas at Southkey, Johor in 2HFY21.

• In spite of rising wheat prices, PPB will not be raising the selling prices of its flour and bakery products. PPB has a good procurement and market intelligence team, who managed to purchase wheat, soybean and corn at low prices last year. PPB normally hedges its wheat supply, three to six months in advance.

• According to Bloomberg, US soybean price has climbed by 58.3% to US$14.18/bushel since the middle of last year while US corn price has increased by 48.6% to US$5.52/bushel. The price of soft red winter wheat has surged by 27.0% to US$6.52/bushel since mid-2020.

• PPB shut down Massimo bread operations for a week in January 2021 as some workers were infected with Covid- 19. However, bakery operations have resumed and demand for bakery products is positive. We do not expect a significant impact from the one-week shutdown on PPB’s bottom line. Massimo is part of PPB’s consumer products division, which recorded a pre-tax profit of RM32.4mil in FY20.

Source: AmInvest Research - 5 Mar 2021