Journey to Wealth
PPB Group - Dragged by Wilmar Hold
- Maintain HOLD on PPB Group Bhd, with a lower fair value of RM17.25/share versus RM17.45/share previously. Our fair value of RM17.25/share is based on a PE of 18x on FY13F EPS.
- In the past seven years, PPB's PE band ranged from a low of 9x to a high of 24x. Average PE was 15x. PPB's 18%-owned associate, Wilmar International, is currently trading at FY13F PE of 11x based on Bloomberg consensus estimates.
- PPB's 1QFY12 results were below expectations and consensus estimates due to Wilmar's weak results. We have cut PPB's FY12F-FY13F earnings forecasts by 6% to 9%.
- PPB's share of profits in associates (mainly Wilmar) fell 36.6% from RM223.3mil in 1QFY11 to RM141.6mil in 1QFY12.
- Wilmar's pre-tax loss of US$52.5mil in the soybean crushing and refining division was attributed to poor timing of purchases of feedstock and overcapacity in the soybean crushing industry in China.
- Disregarding Wilmar, PPB's EBIT was flat at RM56mil in 1QFY12 against 1QFY11. The group's revenue expanded 20.2% YoY to RM697mil in 1HFY12 underpinned by a 29.5% expansion in the turnover of the flour division.
- In spite of the strong revenue growth, PPB's EBIT was stagnant in 1HFY12 due to margin erosions in the flour, cinema and livestock divisions.
- We believe that the flour division was affected by losses in the bread division. PPB's Massimo wheat germ bread is still being sold at the promotional price of RM2.50/400 gm loaf after launching in July 2011.
- We reckon that PPB's strategy is to increase its market share in the bread industry in Malaysia first before increasing the selling price of the bread.
- We believe that the flour division would have performed better if not for the losses in the bread segment. This is due to lower wheat prices.
- According to Bloomberg, which uses low protein soft red wheat as a gauge, price of wheat fell by about 23% from an average of US$8.64 5/8/per bushel in 1QFY11 to US$6.64 1/4/bushel in 1QFY12.
Source: AmeSecurities
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
