Investment Highlights

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

• PPB’s net profit is expected to rebound in FY24F on the back of a recovery in Wilmar International’s net profit. According to Bloomberg, Wilmar’s net earnings are forecast to rise to US$1.7bil in FY24F from US$1.2bil in FY23E. We attribute the climb in Wilmar’s net profit to improvements in soybean crushing margins in China.

• PPB’s 9MFY23 net profit was within our forecast and consensus. Comparing 9MFY23 against 9MFY22, PPB’s net profit slid 46.5% to RM952.9mil as share of profits in associates (mainly Wilmar) dived by 58.6%.

• Wilmar was hit by low palm product prices and weak soybean crushing margins in China. Net profit of Yihai Kerry, which is Wilmar’s unit in China, plunged by 59.8% YoY to RMB909.1mil in 9MFY23.

• On a positive note, PPB’s grains and agribusiness division swung into a pre-tax profit of RM219.6mil in 9MFY23 from a loss of RM44.6mil in 9MFY22. This was driven by a lower cost of wheat in Malaysia and Vietnam. The grains and agribusiness division recorded a pre-tax profit margin of 6.5% in 9MFY23 vs. -1.3% in 9MFY22.

• The film and exhibition division recorded a larger pre-tax profit of RM14.2mil in 9MFY23 vs. RM8.8mil in 9MFY22. To recap, cinema patronage was affected by Covid last year.

• In spite of strong revenue, the film and exhibition division’s profitability has not returned to pre-Covid levels yet due to the jump in costs such as wages and electricity. Revenue of the film and exhibition unit increased by 21.2% YoY to RM463.3mil in 9MFY23. Cinema admissions jumped by 25% YoY in 9MFY23 while box office collections surged by 23%.

• PPB is currently trading at an undemanding FY24F PE of 11x, which is below its 2-year average of 14x.

Source: AmInvest Research - 30 Nov 2023