Investment Highlights

• We maintain BUY on PPB Group with a lower fair value of RM18.80/share (vs. RM19.40/share previously). We have reduced PPB’s FY24F net profit by 8% and FY25F net earnings by 3% to account for weaker performances from Wilmar International and the cinema unit.

• Our fair value for PPB is based on a FY25F PE of 15x, which is a tad higher than PPB’s 2-year average of 14x. We ascribe a neutral 3-star ESG rating to PPB.

• On an annualised basis, PPB’s 1QFY24 net profit of RM337.2mil was 8% below our forecast but within consensus. PPB’s results were disappointing as 18.6%- owned associate, Wilmar International was affected by poor palm refining margins.

• PPB’s net profit shrank by 10.7% YoY to RM337.2mil in 1QFY24 as share of earnings in associate (mainly Wilmar) slid by 13.9% to RM276.3mil. Film exhibition and distribution division was also in the red in 1QFY24.

• On the bright side, pre-tax profit of the grains and agribusiness division climbed by 69% YoY to RM98.8mil in 1QFY24. Excluding the RM12.6mil gain on disposal of a 20% stake in Yihai Kerry, the division’s pre-tax profit would have improved by 47.5% to RM86.2mil. The unit’s pre-tax profit margin rose to 8.8% in 1QFY24 from 4.9% in 1QFY23, underpinned by lower costs of wheat and higher sales volume.

• Comparing 1QFY24 against 4QFY23, the grains and agribusiness division swung into the black in the absence of the RM42.7mil provision. The provision was in respect of MyCC’s penalty for price fixing of feedmeal products.

• PPB has appealed against MyCC’s finding to the Competition Appeal Tribunal and a stay of MyCC’s decision. To recap in December 2023, MyCC affirmed its findings of a price-fixing infringement by PPB’s flour unit, FFM.

• The film exhibition and distribution division registered a larger pre-tax loss of RM18.1mil in 1QFY24 compared to RM25k in 1QFY23. The division’s revenue fell by 7.4% YoY to RM118.8mil in 1QFY24 as cinema patronage was affected by the lack of blockbuster movies. Apart from lower revenue, we attribute the division’s losses to higher costs of wages, electricity and depreciation.

• PPB is currently trading at an undemanding FY25F PE of 11.7x, which is below its 2-year average of 14x.

Source: AmInvest Research - 31 May 2024