Investment Highlights

• We maintain BUY on PPB Group with an unchanged fair value of RM19.40/share, which is based on a FY24F PE of 15x, just slightly higher than PPB’s 2-year average of 14x. We ascribe a 3-star ESG rating to PPB.

• PPB’s annualised 1QFY23 net profit was within our forecast but 8% below consensus estimates. We expect PPB’s net profit to improve over the coming quarters on the back of lower wheat costs and higher contribution from the film exhibition/distribution unit.

• In spite of a 22.8% YoY drop in the share of earnings in associates (mainly 18.8%-owned Wilmar International), PPB’s net profit rose by 24.5% to RM377.5mil in 1QFY23. This was driven by an earnings turnaround in the grains and film divisions.

• The grains and agribusiness unit swung into a 1QFY23 pre-tax profit of RM58.5mil from a 1QFY22 loss of RM161mil, underpinned by a decline in wheat costs and higher selling prices. We believe that the division also benefited from fair value gains on derivatives of RM35mil in 1QFY23 compared to fair value losses of RM188mil in 1QFY22.

• The grains and agribusiness unit recorded a pre-tax profit margin of 4.9% in 1QFY23, which was close to prepandemic margins of 5% to 10%.

• The film and exhibition unit registered an improved marginal pre-tax loss in 1QFY23 vs. RM30mil in 1QFY22. YoY, cinema admissions surged by 2.1x in 1QFY23 while box office collections soared by 96%.

• The increase in cinema patrons and spending in 1QFY23 was supported by blockbuster movies such as Dungeons and Dragons: Honor among Thieves and Ant Man and the Wasp: Quantumania. Recall that the unit suffered from poor patronage in 1QFY22 due to the high number of Covid cases.

• Pre-tax profit of the consumer products division climbed slightly to RM7.3mil in 1QFY23 from RM7.1mil in 1QFY22. The improvement in earnings was driven by increased demand for bakery products. Pre-tax profit margin of the division edged down to 3.7% in 1QFY23 from 3.9% in 1QFY22.

• PPB is currently trading at an attractive FY24F PE of 13x, which is below its 2-year peak of 18x.

Source: AmInvest Research - 1 Jun 2023