• The Star reported that prices of all Massimo bread products except for the white sandwich loaf, will increase by 10 sen to 60 sen. The increase in bread prices took effect last Saturday.

• The hike in prices was due to rising costs of logistics and raw materials. Apart from logistics and raw materials, we believe that the cost of packaging has also gone up.

• The previous increase in Massimo bread prices took place in January 2022. Massimo’s competitor, Gardenia raised prices of its bread products in early September 2022.

• We view the hike in bread prices positively as it would help improve the operating profit margin of the consumer products division. However, the earnings impact is immaterial as more than 80% of PPB’s earnings come from Wilmar International.

• The consumer products division recorded a pre-tax profit of RM14mil in 1HFY22, which was only 1.4% of PPB’s net profit of RM997mil. Massimo is classified under PPB Group’s consumer products division.

• Although wheat prices have declined from its peak, the USD has appreciated by 13% since the beginning the year. The appreciation of the USD against the MYR results in higher costs of imports as wheat is imported in USD.

• According to Bloomberg, the price of soft red winter wheat is US$8.60/bushel currently, 33% below its high of US$12.79/bushel on 14 May.

• We maintain BUY on PPB Group with a fair value of RM19.30/share. PPB is currently trading at a FY23F PE of 12x, which is lower than its 2-year average of 17x.

Source: AmInvest Research - 17 Oct 2022