Investment Highlights

• We maintain BUY on PPB Group with an unchanged fair value of RM19.30/share, based on a FY23F PE of 15x. We ascribe a 3-star ESG rating to PPB.

• PPB’s annualised 9MFY22 net profit was 26% above our forecast and consensus estimates. The discrepancy between PPB’s net profit and our forecast was due to higher than expected earnings from Wilmar International. We raise PPB’s FY22E net profit by 26% to account for this.

• PPB’s net profit climbed by 79% YoY to RM1.8bil in 9MFY22 driven by a 64% jump in the share of net profit in associates (mainly Wilmar). Wilmar benefited from the surge in palm product prices in 9MFY22.

• The grains and agribusiness division recorded a pre-tax loss of RM45mil in 9MFY22 compared to a profit of RM13mil in 9MFY21. The unit was hit by fair value losses on derivatives of RM110mil and high wheat costs in 9MFY22.

• Comparing 3QFY22 against 2QFY22, pre-tax profit of the grains and agribusiness division slid by 62% to RM32mil. We believe that this was due to higher costs of packaging, logistics and wheat. Pre-tax profit margin eased to 2.5% in 3QFY22 from 7.3% in 2QFY22.

• The film and exhibition division reported a pre-tax profit of RM9mil in 9MFY22 compared to a pre-tax loss of RM95mil in 9MFY21. Recall that cinemas were not allowed to operate during the Covid outbreak in 9MFY21.

• On a quarterly basis, pre-tax profit of the film and exhibition division declined by 24% to RM16mil in 3QFY22. We attribute the drop in earnings to the higher minimum wage and lack of blockbuster movies. Pre-tax profit margin shrank to 10% in 3QFY22 from 13.6% in 2QFY22.

• The consumer products division registered a larger pre-tax profit of RM25mil in 9MFY22 compared with RM4mil in 9MFY21. The YoY increase in pre-tax profit in 9MFY22 was underpinned by higher sales of bakery products. Pre-tax profit margin of the division inched up to 4.4% in 9MFY22 from 0.9% in 9MFY21.

• PPB is currently trading at a FY23F PE of 13x, which is lower than its 2-year average of 17x.

Source: AmInvest Research - 30 Nov 2022