Investment Highlights

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

• In spite of PPB’s weak results, we remain positive on the stock as 18.8%-owned Wilmar International’s net profit is expected to rebound by 40% in FY24F. Wilmar’s earnings recovery is envisaged to be underpinned by higher soybean crushing margins in China.

• PPB’s annualised 1HFY23 net profit was 26% below our forecast and consensus. The results fell short of our expectations as PPB’s share of earnings in associates (mainly Wilmar) plunged by 56.6%. We have reduced PPB’s FY23E net profit to account for this. Recall that Wilmar was affected by lower palm product prices and weak soybean crushing margins in 1HFY23.

• On a positive note, the grains and agribusiness division recorded a pre-tax profit of RM126.7mil in 1HFY23 against a loss of RM76.5mil in 1HFY22. The earnings turnaround was driven by higher selling prices and lower costs of wheat in Malaysia. The division registered a pre-tax profit margin of 5.5% in 1HFY23 vs. –3.4% in 1HFY22.

• Comparing 2QFY23 against 1QFY23, the grains and agribusiness division’s pre-tax profit expanded by 16.7% to RM68.2mil as the wheat cost continued to decline. Pretax profit margin improved to 6.1% in 2QFY23 from 4.9% in 1QFY23.

• The film and exhibition division swung into the black with a pre-tax profit of RM14mil in 1HFY23 in contrast to a loss of RM7.4mil in 1HFY22. Recall that cinema patronage was hit by a high number of Covid cases last year. Cinema admissions climbed by 42% YoY in 1HFY23 while box office collections surged by 33%.

• On a quarterly basis, the unit recorded a pre-tax profit of RM14mil in 2QFY23 vs. a pre-tax loss of RM25,000 in 1QFY23. We believe that cinema patronage was supported by movies such as Guardians of the Galaxy Volume 3 and The Flash. Summer blockbuster movies that were released in 3QFY23 included Barbie, Mission Impossible: Dead Reckoning Part 1 and Malbatt: Misi Bakara.

• PPB is currently trading at an attractive FY24F PE of 12x, which is below its 2-year average of 14x.

Source: AmInvest Research - 30 Aug 2023