PPB’s 9M19 core net profit of RM807.5m (-4.7% yoy) came in within our expectations. The group saw lower profits from consumer products, property and its associate Wilmar, but this was partially mitigated by higher contributions from its grains & agribusiness, film exhibition & distribution and environmental engineering divisions. Given that the 9M19 results are within our expectations, we make no changes to our 2019-21 core EPS forecasts. Our DCF-derived TP is unchanged at RM19.20 and we maintain our HOLD rating.

Stronger Sequentially as Expected, 3Q19 Core Net Profit at RM401.9m

PPB Group’s (PPB) 3Q19 revenue was higher at RM1.2bn, up 3.6% qoq, while PBT increased >100% qoq to RM421.8m. The higher profit was mainly attributable to the stronger contribution from Wilmar coupled with improved performance from the grains & agribusiness and environmental engineering divisions. Excluding one-off items, core net profit increased by >100% qoq to RM401.9m.

For 9M19, Profit Was Affected by Lower Contribution From Wilmar

PPB reported a higher 9M19 revenue of RM3.5bn, up 4.1% yoy, mainly attributable to higher contribution from the grains & agribusiness, film exhibition & distribution and property divisions. However, its PBT for 9M19 declined by 4.1% yoy to RM883m, mainly due to lower profit contributions from consumer products (due to higher operating costs at the bakery division), property (due to lower contribution from mall operations and lower share of profit from associates), and Wilmar (due to lower earnings contribution from the oilseeds & grains division). This was partially mitigated by higher profits from grains & agribusiness (due to improved flour prices), film exhibition & distribution (due to higher contribution from the distribution of Chinese New Year movies and local Malay titles), and environmental engineering (due to recognition of profit from new projects secured). After adjusting for one-off items, PPB’s 9M19 core net profit declined by 4.7% yoy to RM807.5m. This came in within our expectation, accounting for 75% and 77% of our and the consensus 2019 forecasts, respectively

Maintain HOLD Rating With An Unchanged TP of RM19.20

Given that the 9M19 results are in line with our expectations, we keep our 2019-21 core EPS forecasts unchanged. We maintain our HOLD rating on the stock with an unchanged DCF-derived TP of RM19.20.

Key Risks

The upside/downside risks to our HOLD rating would be: 1) stronger/weaker economic growth leading to a higher/lower consumption of food products; 2) substantial declines/increases in raw material prices and labour costs; 3) a sustained rebound/plunge in edible oil prices; 4) stronger/weaker economic growth in key export markets increasing/curbing demand; and 5) changes in policies.

Source: Affin Hwang Research - 22 Nov 2019