Investment Highlights

• We maintain BUY on PPB Group with an unchanged fair value of RM19.40/share, based on a FY23F PE of 15x, just slightly higher than its 2-year average of 14x, and neutral 3-star ESG rating.

• We attended PPB’s analyst briefing recently. Here are the key takeaways from the analyst briefing:-

• Demand for consumer products is improving. Although the B40 population segment is facing a higher cost of living, the government is providing support and assistance. Incidentally, PPB does not plan to raise selling prices of bakery products this year.

• PPB is not as worried over the impact of the RussiaUkraine War as before. Commodity markets have stabilised and buyers have adjusted to the new normal.

• Instead, PPB is more concerned over weather conditions as this may result in higher raw material costs. For instance, if production of high protein wheat in Australia is affected by drought, PPB will have to buy from another country, which may be more expensive.

• PPB Group’s electricity expense is envisaged to increase by 30% to 38% in FY23F due to higher tariffs. For instance, overheads of the flour division have gone up by 16% partly due to the hike in electricity tariff.

• We believe that electricity accounts for 20% to 30% of the division’s production costs. To mitigate the impact of higher electricity tariffs, PPB will be focusing on ways to improve operational efficiencies.

• The film and exhibition division is expected to perform well in FY23F, underpinned by higher cinema patronage and spending. Blockbuster movies that are anticipated to be released this year include Mission Impossible, Flash and Aquaman 2. Local movies that will be released this year include Polis Evo 3 and Malbatt.

• PPB Is Currently Trading at An Attractive FY23F PE of 14x, Vs Its 2-year Peak of 20x.

Source: AmInvest Research - 6 Mar 2023