PPB’s 1Q20 core net profit of RM206m (-15.4% yoy) came in largely within our expectations. Profit contribution was lower across all segments (grains and agribusiness, consumer products, property, film exhibition & distribution, environmental engineering and Wilmar) as the businesses were adversely affected by the Movement Control Order (MCO) due to the Covid-19 pandemic. We make no changes to our 2020-22 core earnings forecasts but raise our 12-month DCFderived TP to RM17.00 after rolling forward our valuation horizon. We maintain our HOLD rating on the stock.

Operations Affected by MCO
PPB Group Berhad (PPB) reported a lower 1Q20 revenue of RM1.1bn, down 7.6% yoy, mainly attributable to a decline in contribution from the grains & agribusiness, consumer products, film exhibition & distribution and environmental engineering divisions. The 1Q20 PBT declined by 28.2% yoy to RM200.9m, mainly due to lower profit contributions across all segments; grains & agribusiness (due to lower flour sales in Indonesia and Malaysia coupled with lower selling prices of livestock), consumer products (loss-making due to lower sales of in-house products), film exhibition & distribution (loss-making due to closure of cinemas during the MCO and lower contribution from box office collection), environmental engineering (due to lower contribution from on-going projects as recognition of project revenue was affected by the MCO), property (lossmaking due to lower rental income and lower contributions from associates) and other operations (due to lower profit contribution from Wilmar).

1Q20 Core Net Profit Was Lower at RM206m, Down 15.4% Yoy
After adjusting for one-off items, PPB’s 1Q20 core net profit declined by 15.4% yoy to RM206m. The 1Q20 results came in largely within our expectation, accounting for 20.2% of our 2020E core earnings. We see this as in-line as 1Q is seasonally a weaker quarter.

Source: Affin Hwang Research - 1 Jun 2020