Period  3Q13 and 9M13

Actual vs. Expectations PPB Group (PPB) 9M13 core net profit* of RM681m is within consensus expectation at 74% of consensus FY13E forecast of RM919m. However, it is better than our estimate at 80% of our forecast of RM851m. We believe the reason is due to the higher-than-expected USDMYR rate which strengthened to about RM3.26 as of 30-Sep-2013. Note that PPB will recognize higher earnings from Wilmar on firmer USDMYR rate as Wilmar recognizes its earnings in USD while PPB in MYR.

Dividends  As expected, no dividend was announced in 3Q13.

Key Results Highlights YoY, 9M13 core net profit improved by 27% to RM681m due to higher earnings contributions from Wilmar, which increased 24%.

 QoQ, 3Q13 core net profit jumped 64% to RM286m as contributions from Wilmar surged 98% to RM243m. However, weaker EBIT at PPB Group (due to lower flour milling and film division earnings) dampened overall earnings growth.

Outlook  4Q13 earnings outlook is bright as Wilmar should benefit from higher CPO prices and swift implementation of biodiesel policy in Indonesia.

Change to Forecasts FY13E earning is increased by 3% to RM873m after assuming higher USDMYR rate of 3.17 (previously 3.06). FY14E earning is raised by 8% to RM935m after assuming higher USDMYR rate of 3.17 (previously 2.85).

Rating Maintain OUTPERFORM PPB is poised to benefit from Wilmar’s earnings recovery. Earnings will be further boosted if ringgit weakens further (or USDMYR rate increases higher than expected).

Valuation  We raised our TP to RM16.50 based on an unchanged Fwd. PER of 20.9x on a higher FY14E EPS of 78.8 sen.

Risks to Our Call Lower than expected earnings from Wilmar.

 Lower than expected margin for PPB’s business divisions.

Source: Kenanga