Period  4Q14/FY14

Actual vs. Expectations  PPB’s FY14 core net profit* (CNP) of RM922m beat expectations, making up 117% of consensus forecast (RM785m) and 120% of our estimate (RM770m).

 The key reason was higher-than-expected contribution from Wilmar. Recall in our 13-Feb-15 report that Wilmar’s results exceeded expectations. Wilmar’s actual FY14 contribution of RM695m made up 135% of our forecast contribution (RM515m).

 Excluding Wilmar’s contribution, PPB’s FY14 PBT at RM333m was in line, at 99% of our forecast PBT (ex- Wilmar) of RM338m.

Dividends  A final dividend of 16.0 sen was announced. Total FY14 dividend of 23.0 sen (1.6% dividend yield) exceeded our estimate (19.0 sen) but came in below market estimates (28.0 sen).

Key Results Highlights

 YoY, FY14 CNP slipped 4% to RM922m due to lower profit contribution from Wilmar (-8% to RM716m). Recall that Wilmar’s CNP declined 5% to USD1229m due to weaker margins in its Oilseeds and Grains (O&G) and Palm & Laurics (P&L) divisions. This was partly offset by PPB’s own businesses which improved 5% to RM321m. Notably, the grain, flour and feed (GFF) business improved 39% to RM179m due to higher sales volume and improved cost efficiency.

 QoQ, 4Q14 CNP dropped 12% to RM286m as GFF segment PBT declined 79% to RM16m due to unfavourable grains hedging position. This was slightly offset by better Property PBT (+97% to RM14m) due to project completion and sale of an investment property. Wilmar contribution also rose slightly (+2% to RM252m) despite weaker QoQ CNP (-3% to USD416m) due to the stronger USD (from USDMYR3.19 to USDMYR3.37).

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

 However, we are neutral on Wilmar as we think the excess refining capacity in the palm downstream industry is likely to persist for at least the next 6-12 months, which may limit significant margin expansion. Change to Forecasts  FY15-16E CNP slightly higher by +1% each, post house-keeping. In light of the weaker ringgit. We revise up our expected PBT contribution from Wilmar by 2%-2% by increasing our FY15-FY16E USDMYR expectations to USDMYR3.53 (from USDMYR3.40), in line with our in-house forecasts. Meanwhile, we maintain our FY15-16E PBT forecasts for PPB businesses at RM351m-RM356m.

Rating Maintain MARKET PERFORM  Recall from our PPB (Wilmar) Company Update (16-Feb) where we noted that we are neutral on Wilmar due to excess capacity in the downstream industry and the lacklustre Chinese demand growth in FY15E. For PPB’s own businesses, we think upside is limited as we expect only 4%-1% PBT growth in FY15-16E.

Valuation  Increase TP to RM15.42 (from RM15.26) based on unchanged Fwd. PER of 19.5x on higher FY15E EPS of 79.1 sen (previously 78.2 sen). Our Fwd. PER valuation is based on the 3-year historical mean valuation.

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

Source: Kenanga