We attended Wilmar’sFY15 Analysts’ Briefing which was well attended by about 80 participants. We returned with our NEUTRAL view intact as rising CPO prices and stable refining & crushing margins could be offset by weak near-term demand, particularly in China. Maintain our MARKET PERFORM call on PPB with an unchanged TP of RM16.92, based on Fwd. PER of 19.5x applied to FY16E EPS of 86.7 sen.

Plantation upstream should improve. Management believes that rising CPO prices should offset their flat FFB growth expectation, leading to a gradual increase in Plantation upstream performance. We concur with management’s expectations, though we expect CPO prices to soften in 2H16 on peak production season; hence, the upstream side is likely to see stronger results in 1H16.

Better biodiesel contribution in 1H16. Management noted that the Indonesian government intends to go forward with B20 biodiesel implementation, but we think that lack of infrastructure may impede widespread use of B20 diesel. Nevertheless, with the confirmed award of biodiesel tender to Wilmar at 920k kiloliters (kl) or 814k MT for Nov-15 to Apr-16, we think biodiesel will contribute strongly to 1H16 downstream earnings.

Expecting short-term Consumer slowdown. As growth in China continues to slow, we expect weaker Consumer Product volume in the Oilseeds and Grains (O&G) segment to continue. Meanwhile, the frontier market in Africa could see slower growth as well due to declining agri-commodity prices and lower infrastructure spending. Hence, we expect flattish volume of consumer products to continue in the short-term, with potential risk of weakening if the Chinese Yuan (CNY) devalues further.

Maintain MARKET PERFORM on PPB with unchanged TP of RM16.92. Our TP is based on an unchanged Fwd. PER of 19.5x applied to FY16 EPS of 86.7 sen. Our 19.5x Fwd. PER is based on the 3-year historical mean PER. We maintain our MARKET PERFORM call on PPB as we think the improving outlook in Wilmar’s Tropical Oils (TO) and O&G milling businesses could be limited by a slower Consumer segment. Risks to our call are lower-thanexpected earnings from Wilmar or PPB’s core business divisions.

Source: Kenanga Research - 22 Feb 2016