Period

2Q15/1H15

Actual vs. Expectations

PPB’s 1H15 core net profit (CNP) at RM415m made up 42% of consensus (RM0.99b) and 41% of our forecast (RM1.00b) due to lower contribution from Wilmar (making up 40% of FY15E contribution of RM0.73b). We deem this seasonally inline against the 3-year historical average 1H CNP, which made up only 36% of full-year CNP.

Excluding Wilmar’s contribution, 1H15 PBT at RM172m was inline, making up 49% of our forecast PBT (ex-Wilmar) of RM351m. However, note that Grains segment’s PBT fell sharply (-79% to RM16m QoQ) due to higher competition in Indonesia.

Dividends

An interim dividend of 8.0 sen was announced, making up 33% of FY15E DPS of 24.6 sen. We deem this inline as historically the final dividend tends to be higher.

Key Results Highlights

YoY, 1H15 CNP rose 34% to RM415m as Wilmar's contribution rose 50% to RM294m. Recall that Wilmar's 1H15 CNP increased 21% on 4x PBT improvement to USD282m in its Oilseeds & Grains (O&G) segment, although Tropical Oils (TO) segment softened 32% to USD328m. PPB's own operations improved only 4% to RM172m mainly on flattening Grains segment’s performance as noted above.

QoQ, 2Q15 CNP declined 21% mainly on lower contribution from Wilmar (-15% to RM135m) which was softer (-26% to USD194m) on weaker O&G PBT due to seasonally weaker consumer volume. Meanwhile, PPB's own PBT ex-Wilmar fell 41% to RM64m on weaker Grains segment as mentioned, although this was partly offset by stronger Film segment’s PBT (+26% to RM23m) as six new cinemas were opened along with summer Blockbuster titles released.

Outlook

Management expects to achieve similar performance in 2H15 as stable labour market conditions should support household spending. However, given softening commodity prices and aggressive competition, we think the Grains segment will record weaker margins going forward. Nevertheless, PPB’s overall financial results will continue to be contingent on Wilmar’s performance.

We remain neutral on Wilmar as we think their improving O&G and plantation downstream segments could be limited by its uninspiring Plantation upstream and Consumer segments. However, 2H15 contributions to PPB are likely to be higher as Wilmar's refining margins improve post-levy in Indonesia, and if the USD continues to strengthen.

Change to Forecasts

We lower our FY15E CNP to RM0.95b as we revise down Grains segment’s margin to 5% (from 8%). No change to FY16E CNP at RM1.01b.

Rating

Maintain MARKET PERFORM

We maintain our neutral long-term view on Wilmar as its better O&G outlook is limited by the lacklustre Plantations upstream’s performance. For PPB’s own businesses, we are neutral as stable consumer spending could be offset by aggressive competition.

Valuation

TP lowered to RM16.50 (from RM16.95) based on unchanged Fwd. PER of 19.5x applied to average FY15-16E EPS of 84.6 sen (previously 86.9 sen). No change to our 19.5x Fwd. PER valuation basis which is based on the 3-year historical mean valuation, justified by our neutral outlook for both Wilmar and PPB.

Risks to Our Call

Lower-than-expected earnings from Wilmar or PPB’s core business divisions.

Weaker consumer sentiment may impact sales

Source: Kenanga Research - 27 Aug 2015