Investment Highlights

• We downgrade PPB Group to HOLD from BUY with a lower fair value of RM17.60/share vs. RM21.85/share previously. Our fair value for PPB is based on an unchanged FY22F PE of 18x and a 3% premium for a four-star ESG rating.

• We reduce PPB’s FY22F net profit by 19.5% to account for losses in the grains/agribusiness and film exhibition/distribution divisions. PPB’s annualised 1QFY22 net profit was 27% below our forecast and 16% below consensus.

• In spite of stronger earnings from Wilmar International, PPB’s net profit fell by 24.6% YoY to RM303.2mil in 1QFY22. The group was hit by losses in the grains/agribusiness and film exhibition/distribution units.

• The grains and agribusiness division recorded a pre-tax loss of RM161mil in 1QFY22 compared to a profit of RM89.3mil in 1QFY21. The division’s pre-tax loss was RM33.9mil in 4QFY21.

• The grains/agribusiness unit was affected by a fair value loss on derivatives of RM188mil and higher costs of wheat in 1QFY22. Although PPB raised the selling prices of its bulk flour products by 10% in Malaysia in 1QFY22, this was not enough.

• Although the cinema industry in Malaysia has resumed operations, PPB’s film exhibition and distribution division registered a larger pre-tax loss of RM28.4mil in 1QFY22 vs. RM25.7mil in 1QFY21. The unit was affected by higher operating costs. We attribute part of the increase in operating costs to the refurbishment and renovation of MBO cinemas, which PPB acquired last year.

• Comparing 1QFY22 against 4QFY21, the film exhibition/distribution division’s pre-tax losses widened to RM28.4mil from RM10.5mil.

• The consumer products division recorded a pre-tax profit of RM7.1mil in 1QFY22 in contrast to a loss of RM1.2mil in 1QFY21 in the absence of Covid-related expenses and higher sales of bakery products. On a QoQ basis, the consumer products division’s pre-tax profit improved by 59.6% to RM7.1mil in 1QFY22 due to higher selling prices and demand.

Source: AmInvest Research - 1 Jun 2022