Investment Highlights

• We maintain HOLD on PPB Group with a lower fair value of RM19.60/share vs. RM19.77/share previously. Our fair value for PPB is based on a FY22F PE of 18.0x and a 3% premium for our four-star ESG rating.

• PPB’s annualised 1HFY21 results were 10.2% below our expectations and 18.7% below consensus estimates. We have reduced PPB’s FY21E net profit by 4.3% to account for weaker earnings from the grains and agribusiness division and Wilmar International.

• In spite of the poor 2QFY21 results, PPB has declared an interim gross DPS of 10 sen for 1HFY21 (1HFY20: 8 sen). We have forecast a gross DPS of 35 sen for FY21E, which implies a yield of 1.9%.

• PPB’s net profit rose by 12.6% YoY to RM585.6mil in 1HFY21 mainly on the back of a 29.7% increase in the share of net profit in associates. Most of the associate earnings are generated by 18.6%-owned Wilmar International. Wilmar’s core net profit expanded by 15.2% YoY to US$732.2mil in 1HFY21 underpinned by higher palm refining margins and stronger palm product prices.

• However on a QoQ basis, PPB’s performance was weak in 2QFY21. After a strong 1QFY21, PPB’s net profit plunged by 54.4% QoQ to RM183.5mil in 2QFY21. Apart from lower earnings from Wilmar, PPB was hit by losses in the grains and agribusiness division.

• The grains and agribusiness unit recorded a pre-tax loss of RM87.9mil in 2QFY21 vs. a pre-tax profit of RM89.3mil in 1QFY21 as higher costs of wheat eroded operating profit margin. On a yearly basis, the pre-tax profit of the grains and agribusiness plunged to RM1.4mil in 1HFY21 from RM128.5mil in 1HFY20.

• Pre-tax loss of the film exhibition and distribution division widened to RM58.6mil in 1HFY21 from RM54.6mil in 1HFY20 due to a higher number of shutdown days. Comparing 2QFY21 against 1QFY21, the division’s pre-tax losses grew to RM32.9mil from RM25.7mil.

• PPB’s consumer products division recorded a pre-tax profit of RM2.1mil in 2QFY21 vs. a pre-tax loss of RM1.2mil in 1QFY21 as Massimo resumed operations. Recall that Massimo was shut down for a week in 1QFY21.

Source: AmInvest Research - 27 Aug 2021