PPB’s 6M19 core net profit of RM405.6m (-16.3% yoy) came in below our expectations, which was mainly due to lower-than-expected contribution from its associate Wilmar. The group saw lower profits from grains & agribusiness, consumer products, environmental engineering and its associate Wilmar, but this was partially mitigated by higher contributions from its film exhibition & distribution and property divisions. As such, we cut our 2019-21 core EPS forecasts by 2-7%, mainly to account for lower earnings contribution from Wilmar. Given the cut in earnings forecasts, our DCF-derived TP has been lowered to RM19.20. Maintain HOLD rating for PPB.

Weaker 6M19 PBT Mainly Due to Lower Contribution From Wilmar

PPB Group Berhad (PPB) reported a higher 6M19 revenue of RM2.3bn, up 3.7% yoy, mainly attributable to higher contribution from the grains & agribusiness, film exhibition & distribution and property divisions. However, PPB’s PBT for 6M19 declined by 15.5% yoy to RM461.3m, mainly due to lower profit contributions from the grains & agribusiness (due to weaker performance from the animal feed sub-division), consumer products (due to lower sales of in-house products and higher operating costs at the bakery division), environmental engineering (due to several projects being at the initial stage of implementation), and Wilmar (due to lower earnings contribution from the oilseeds & grains division and losses at the sugar division). This was partially offset by higher profits from the film exhibition & distribution (due to higher contribution from the distribution of Chinese New Year movies and local Malay titles) and property (due to higher progress billing from the Megah Rise project).

6M19 Core Net Profit Was at RM405.6m, Down 16.3% Yoy

After adjusting for one-off items, PPB’s 6M19 core net profit declined by 16.3% yoy to RM405.6m, accounting for 35% and 34.3% of our and the consensus 2019 forecasts, respectively. This was below our expectations mainly due to lower-than-expected contribution from Wilmar. PPB declared an interim DPS of 8 sen (6M18: 8 sen), which was within our expectation.

Source: Affin Hwang Research - 30 Aug 2019