Investment Highlights

• We upgrade our recommendation on PPB Group to BUY from HOLD with a higher fair value of RM21.85/share vs. RM18.55/share previously. Our fair value for PPB is based on an unchanged FY22F PE of 18.0x and a 3.0% premium for a four-star ESG rating. We have raised PPB’s FY22F net profit by 17.9% to account for a lower effective tax rate and higher earnings from Wilmar International.

• PPB has declared a final gross DPS of 25.0 sen, which brings total gross DPS to 35.0 sen for FY21 (FY20: 46.0 sen). The gross DPS of 35.0 sen translates into a yield of 2.0% for FY21.

• PPB’s FY21 net profit was 8.3% above our forecast but within consensus estimates. PPB beat our forecast due to stronger-than-expected earnings from Wilmar International and a positive tax expense in 4QFY21. The positive tax expense came mainly from deferred tax credits of RM40.5mil in FY21.

• PPB’s grains and agribusiness division was hit by the surge in wheat costs in FY21. Also, there was a fair value loss on derivatives of RM109mil in FY21. As a result, the division registered a pre-tax loss of RM21.3mil in FY21 vs. a pre-tax profit of RM161.8mil in FY20. Pre-tax profit margin dived to -0.6% in FY21 from 5.2% in FY20.

• The film exhibition and distribution unit was affected by the closure of operations during MCO 3.0 in 2QFY21 and 3QFY21. The division recorded pre-tax losses of RM105.3mil in FY21 vs. RM122.5mil in FY20.

• Comparing 4QFY21 against 3QFY21, PPB’s net profit improved by 23.2% to RM502.6mil on higher earnings from Wilmar International.

• PPB’s grains and agribusiness unit recorded a pre-tax loss of RM33.9mil in 4QFY21 vs. a pre-tax profit of RM11.3mil in 3QFY21. We believe that the division recognised a fair value loss on derivatives of about RM57.9mil in 4QFY21. Going forward, the 10% increase in the selling prices of bulk flour products in Malaysia is expected to provide a reprieve to the flour division.

• The film exhibition and distribution division posted a small pre-tax loss of RM10.5mil in 4QFY21 vs. RM36.2mil in 3QFY21 as cinemas in Malaysia rec-commenced operations in October. The division’s revenue soared to RM72.4mil in 4QFY21 from a mere RM3.1mil in 3QFY21.

Source: AmInvest Research - 1 Mar 2022