Stock Name: PPB
Company Name: PPB GROUP BHD
Research House: HWANGDBS

PPB Group Bhd
(Sept 3, RM17.38)
Maintain hold at RM17.40 with target price RM16.80: The analyst briefing focused on PPB's flour business. PPB expects the current higher wheat prices to have some impact on 2H2010 earnings (1H2010 flour margin: 8.7%; FY2010F assumption: 8%). But this will be mitigated by a stronger ringgit against the US dollar that will result in cheaper raw material costs, plus, only 35% of its domestic flour business is generated from general purpose flour, a controlled item. The association has agreed to raise selling prices in 2010 for the other types of flour. We understand part of the spike in wheat prices to US$7.60/bushel from a low of US$4.40 is due to the drought in Russia that resulted in a ban on wheat exports.

PPB is still committed to expanding its flour business regionally, especially to Indonesia and Vietnam (capex estimate US$50 million), but the timing remains unclear. Postpayment of special 65 sen dividend per share, we expect PPB to have RM677 million net cash remaining. It already has a 1,000 MT/day plant in Indonesia, that started operations in September 2009, that contributed to 1H2010 flour earnings. We understand production has been strong in the last two months, and all its flour had been sold. While PPB is a relatively new player in Indonesia (Indofood has more than 70% market share), we are positive on longer-term prospects since the flour price is not controlled there and its large population would translate into positive consumption trends. Indonesia imports'' three to four million tonnes of wheat per year against one million for Malaysia.

We maintain our 'hold' recommendation with a target price of RM16.80. Our preferred pick is Wilmar as a stronger, more liquid proxy to the growing opportunities in the China market. On a relative basis, PPB's share price also continues to outpace Wilmar's, with a premium over the latter. ' HwangDBS Vickers Research, Sept 3


This article appeared in The Edge Financial Daily, September 6 2010.