Investment Highlights

• We maintain BUY on PPB Group with an unchanged fair value of RM19.40/share, based on FY25F 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.

• We have reduced PPB’s FY24F net profit by 9% to account for lower earnings from the film exhibition and distribution division. The unit is expected to face higher operating expenses and slower revenue growth in FY24F as the strike by Hollywood actors and writers in 2HFY23 affected the release and production of movies.

• Here are the key takeaways from PPB’s analyst briefing yesterday: -
  
  ➢ The RM113mil impairment for cinema assets in Vietnam and Malaysia came about as the discounted cash flows of the operations fell below their carrying value. In Malaysia, box office collections have only returned to 75% of their pre-pandemic levels.
  
  ➢ The slower-than-expected cinema recovery is due to a few reasons. Firstly, the Hollywood actors and writers’ strike in 2HFY23 affected the supply of movies. Secondly, after the Covid-19 pandemic, consumers’ preference for movies had switched from superheroes to original content such as Barbie or Oppenheimer.
  
  ➢ In Vietnam, cinema operations have returned to 92% of their pre-pandemic levels. Unfortunately, due to the high costs of debt and equity in the country, the discounted cash flows fell below their net book value.
  
  ➢ We forecast the film exhibition and distribution division to record a pre-tax profit of RM29.9mil in FY24F compared to a pre-tax loss of RM127.1mil in FY23. The unit is estimated to account for 2% of PPB’s FY24F pre-tax profit. More than 80% of PPB’s pre-tax earnings come from 18.8%-owned Wilmar International.
  
  ➢ On a positive note, we believe that the outlook for the grains and agribusiness operations is positive due to healthy demand for flour products and low cost of wheat. PPB’s flour mills are currently operating close to 100%. We forecast a pre-tax profit of RM229.4mil for the unit in FY24F vs. RM214.6mil in FY23.

• PPB is currently trading at an undemanding FY25F PE of 12x, below its 2-year average of 14x.

Source: AmInvest Research - 6 Mar 2024