Period  3Q14/9M14

Actual vs. Expectations PPB’s 9M14 core net profit (CNP) of RM635m is better than expected as it makes up 81% of consensus forecast (RM780m) and 86% of our forecast (RM742m) for FY14.

 Although Wilmar result is within expectation as highlighted on our 12-Nov-2014 report, PPB’s own “Grains Trading, Flour and Feed Milling (GFF)” division’s PBT margin turned out to be very good at 9.3% in 9M14 (against 6.0% in 9M13 and our expectation of 6.3% previously).

Dividends  None as expected.

Key Results Highlights YoY, 9M14 CNP declined 7% to RM635m due to lower profit contribution from Wilmar (-19% to RM443m). Recall that Wilmar’s earning is lower due to lower PBT from “Oilseeds And Grains (OAG)” and

“Palm And Laurics (PAL)” divisions. Note that OAG division suffered low crushing margin in China in 1H14 while PAL division is facing lower margin due to excessive refining capacity in the palm oil downstream industry. Despite weaker Wilmar performance, PPB’s own businesses have performed well (EBIT +36% to RM286m) and this has cushioned overall earnings decline to only 7%.

 QoQ, 3Q14 CNP improved 95% to RM325m due to improved profit contribution from Wilmar (+149% to RM247m). Note that Wilmar’s OAG division registered a strong jump in PBT to USD101m (from USD4m in 2Q14) as crushing margin improved significantly in China during 3Q14.

Outlook  Management guided that PPB’s own core operations are expected to perform well but its overall financial results will continue to be contingent on Wilmar’s performance.

Change to Forecasts FY14E CNP is increased by 4% to RM770m after increasing PBT margin estimate for PPB’s GFF division to 8.5% (from 6.3%) and reducing CPO prices assumption to RM2,400/MT (from RM2,500/MT). FY15E CNP is increased by 4% to RM949m after increasing PBT margin estimate for PPB’s GFF division to 8.3% (from 6.3%).

 Although we are likely to reduce our FY15E CPO prices assumption, impact to PPB is minimal as it is diversified through Wilmar presence across different countries and commodities.

Rating Maintain MARKET PERFORM

 Short-term catalyst is limited as we think FY14E earnings should be lower YoY. However, PPB’s own division especially GFF division has performed well and this should support share price.

Valuation  Increase our TP to RM15.60 (from RM15.00) based on unchanged Fwd. PER of 19.5x on higher FY15E

EPS of 80.0 sen (previously: 76.9 sen). Our Fwd. PER of 19.5x is based on mean valuation.

Risks to Our Call Lower-than-expected earnings from Wilmar or PPB’s core business divisions.

Source: Kenanga