Period

3Q15/9M15

Actual vs. Expectations

PPB’s 9M15 core net profit (CNP*) at RM682m was in line, making up 71% of consensus’ forecast (RM963m) and 73% of ours (RM935m).

Dividends

No dividend announced, as expected.

Key Results Highlights

YoY, 9M15 CNP improved 7% to RM682m as Wilmar’s contribution rose 13% to RM499m. Recall that Wilmar’s 9M15 CNP improved 1% to USD816m as Oilseeds and Grains (O&G) PBT jumped 128% on crushing margin recovery, despite Tropical Oils (TO) PBT declining 36% on weak CPO prices. PPB’s own operations PBT rose 8% on higher Engineering (+395% to RM14m) contribution due to higher revenue recognition of raw water and sewage projects. However, Consumer Product PBT was lower (- 34%) due to lower sales of agency products.

QoQ, 3Q15 CNP jumped 46% mainly on higher contribution from Wilmar (+52% to RM205m) which saw CNP jumping 85% on Sugar’s seasonal turnaround (USD109m PBT) and O&G PBT doubling (USD244m) on higher volume. PPB’s PBT ex-Wilmar nearly doubled to RM124m as Grains segment’s margins recovered to 13% (from 2%) on forex gains and higher feed volume. Meanwhile, lower Film segment’s PBT (-40% to RM13m) was in line as 2Q traditionally sees the highest film distribution contribution due to summer blockbuster releases.

Outlook

We are overall neutral on PPB’s own businesses. On the positive side, we agree with the management’s positive view on its Grains, Film and Engineering segments due to strong distribution channels, new cinema openings and recognition of construction contracts. However, we also concur with the management’s view that property sales are likely to be weak due to soft sentiment. Nevertheless, PPB’s overall financial results continue to be contingent on Wilmar’s performance.

We are neutral on Wilmar as we think their improving O&G and plantation downstream segments could be dragged by its uninspiring Plantation upstream and Consumer segments. However, 4Q15 contributions to PPB should be sustained as Wilmar's refining margins should improve post-levy in Indonesia, and if the USD continues to strengthen.

Change to Forecasts

No changes to FY15-16E CNP.

Rating

Maintain MARKET PERFORM

We maintain our neutral long-term view on Wilmar as its positive O&G outlook is limited by the lacklustre Plantations upstream outlook. For PPB’s own businesses, we are neutral as the decent Grains, Film and Engineering outlook could be offset by other segments experiencing weaker market demand.

Valuation

Maintain our TP at RM16.92 based on unchanged Fwd. PER of 19.5x applied to FY16E EPS of 86.7 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

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

Weaker consumer sentiment may impact sales

Source: Kenanga Research - 27 Nov 2015