Investment Highlights

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

• PPB has declared a final gross DPS of 30 sen, which brings total gross DPS to 42 sen for FY23 (FY22: 40 sen). We forecast a gross DPS of 45 sen for FY24F, which implies a yield of 2.9%.

• PPB’s FY23 net profit of RM1.4bil was within our expectations but 17% above consensus.

• PPB’s net profit fell by 36.5% to RM1.4bil in FY23 as share of results in associates (mainly 18.8%-owned Wilmar International) plummeted 39.1% to RM1.3bil. Wilmar’s core net profit contracted by 35% to US$1.6bil in FY23 mainly due to weak demand and poor soybean crushing margins in China.

• On a brighter note, PPB’s grains and agribusiness division recorded a larger pre-tax profit of RM214.6mil in FY23 compared to RM0.1mil in FY22. The division benefited from a lower cost of wheat in FY23. Pre-tax profit margin rose to 4.9% in FY23 from 0% in FY22. On a quarterly basis, the grains and agribusiness unit swung to a loss of RM5mil in 4QFY23 due to a provision of RM42.7mil for the MyCC penalty.

• Pre-tax losses of the film and exhibition division widened to RM127.1mil in FY23 from a loss of RM17.3mil in FY22 due to impairments of RM113mil on the Malaysian and Vietnamese operations. Excluding impairments, the division would have recorded a smaller loss of RM8mil in FY23.

• The profitability of the film and exhibition division has not returned to its pre-Covid levels of RM50mil-RM60mil per year. This is due to increase in the costs of wages and electricity. Also in 4QFY23, the unit was affected by the deferment of blockbuster movies resulting from the actors’ strike in Hollywood.

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

Source: AmInvest Research - 29 Feb 2024