We attended PPB's 1H15 Analysts' Briefing which was well attended by about 30 pax. We came back feeling neutral on PPB's short-term prospect, although its long-term outlook remains positive. Despite the neutral-to-positive impact due to a stronger USD, and continued Film segment growth, slower Grains and Property contributions could limit its short-term prospect. Thus, we reiterate our MARKET PERFORM call on PPB with a higher TP of RM16.92 based on Fwd. PER of 19.5x on higher FY15-16E EPS of 86.8 sen (from 84.6 sen).

Stronger USD benefits bottom-line. Management noted that the stronger USD (+21% since Jan-15) has a negligible negative impact on its "Grains and agribusiness" segment (G&A) as their fully-imported wheat has also seen price decline (-34% since Jan- 15). We view that a strong USD is slightly positive overall to PPB as it could result in higher contribution from associate Wilmar (72% of FY15E PBT). Accordingly, we raised our FY15-16E USDMYR assumption by 7% to 3.83, in line with our latest in-house forecast. Hence, we up revise upwards our FY15-16E CNP by 3% to RM0.98-1.08b.

eeping up Film segment growth. Recall in our previous update (6-Mar) that the "Film exhibition and distribution" (Film) segment targeted 6 new locations in 2015 with a goal of 11 new cinemas by 2017, totalling 42 locations (from 31 as of end-2014). We believe both targets are fully achievable as 4 locations have begun operations in 1H15 while 2 more locations (Alor Setar, Klang Valley) should be completed by 4Q15. We also gather that the company plans to extend its Film business overseas with a JV to open a 9-screen cinema in Cambodia's largest shopping mall. Hence, we remain positive on the Film division's prospects on its 35% growth in cinema locations by 2017.

Challenging short-term G&A outlook. Despite softer wheat prices, management noted that the Indonesian flour market is increasingly competitive due to a recent price war as a new competitor entered the market. This resulted in 2Q15 PBT declining 70% YoY and 79% QoQ to RM16m. Although PPB expects to outlast the small players with its better distribution network, we believe our recently lowered FY15E G&A margin of 5% (from 8%) is justified.

Seeing slowdown in Property. In line with other Johor-centric property players, PPB was affected by the subdued market sentiment in its Puteri Harbour project, which saw a take-up rate of about 55%. Nevertheless, we are neutral on the earnings impact of the project as we believe its contribution to PPB's FY15E PBT is limited to RM17m or 2%, assuming 20% PBT margin.

Maintain MARKET PERFORM with higher TP of RM16.92. Our TP of RM16.92 (previously RM16.50) is derived from an unchanged 19.5x Fwd. PER applied to a higher average FY15-16E EPS of 86.8 sen (previously 84.6 sen). Our 19.5 Fwd. PER valuation is based on the 3-year historical mean valuation, justified by our neutral outlook on PPB and its associate Wilmar (refer to our PPB-Wilmar Company Update published 7-Aug for details).

Source: Kenanga Research - 7 Sep 2015