Period     2Q13 and 1H13

Actual vs. Expectations    PPB’s 1H13 core net profit of RM395m* is broadly in line with expectations as it made up 44% of the consensus’ FY13 forecast (RM894m) and 46% of our forecast (RM851m). Although contributions from Wilmar came in slightly below expectations (due to lower-than-expected CPO prices), better-than-expected earnings from the film division compensated for the short-fall.

Dividends    As expected, an interim single tier dividend of 8.0 sen was announced.

Key Results Highlights   YoY, PPB’s 1H13 core net profit increased 38% to RM395m in higher earnings contribution from Wilmar (+44% to RM300m). 

QoQ, PPB’s 2Q13 core net profit declined 21% to RM174m in line with lower earnings contribution from Wilmar (-31% to RM123m). We believe that Wilmar’s 2Q13 earnings have been affected by the China bird flu scare which may have affected demand for soybean meal, which is used as feedstock for poultry farming. However, things should improve in 2H13 as the fear over the China bird flu is subsiding.

Outlook    Despite the significant earnings improvement YoY, we believe this is already reflected in PPB share price, which has gained 22% YTD (against FBMKLCI’s 3%).

Change to Forecasts   Maintain our FY13E-FY14E earnings of RM851mRM862m. Although we have reduced our 2013 CPO price assumption to RM2400 (from RM2500 previously), we have increased the EBIT margin for PPB’s film division to 16% (from 13%) due to better-than-expected margin so far. Net impact is unchanged earnings forecast for FY13.

Rating  Maintain MARKET PERFORM

Valuation     Maintain TP of RM15.20 based on a Fwd. PER of 20.9x on its FY14E EPS of 72.7 sen.

Risks    Lower than expected earnings from Wilmar.

Lower than expected margin for PPB’s business divisions.

Source: Kenanga