PPB Group (PPB)’s 9M16 CNP at RM541m met consensus’ RM817m forecast at 66% but beat our RM741m estimate at 73% as stronger Wilmar (18.6% owned) contribution came in earlier than our expected 4Q16. No dividend announced, as expected. FY16-17E earnings upped by 13-11% reflecting better Wilmar and Grains & Films contribution. Upgrade to MARKET PERFORM (from UNDERPERFORM) with higher TP of RM16.53 (from RM15.00) on earnings upgrade.

Reversing 2Q losses. 9M16 CNP came in at RM541m, which we deem within consensus’ RM817m forecast at 66% but above our RM741m estimate at 73% at 73% because of stronger and earlier contribution from 18.6% owned associate Wilmar which we had expected to kick in by 4Q16. Note that ex-Wilmar EBIT at RM380m came in above our expected RM429m at 89%, on stronger-thanexpected growth in the Grains and Film segments. No dividend was announced, as expected.

Quarterly boost on Wilmar’s loss reversal. YoY, CNP weakened 21% to RM541m mainly on weaker Wilmar contribution (-39%) due to weaker Oilseed & Grains (O&G) performance (-86% PBT) on poor trades in 2Q16 (please refer to our results report dated 11-Nov for details). Meanwhile, PPB’s own PBT rose 26% on better Grains performance (+31%) due to higher volumes and better flour prices in its Indonesian subsidiary. However, Consumer Products segment contribution weakened 23% despite a 5% revenue improvement due to higher staff and distribution costs. QoQ, losses reversed to CNP of RM367m as Wilmar losses turned positive to RM293m as O&G PBT jumped to USD248m (from LBT of USD344m) on strong crushing performance. However, PPB’s own PBT growth was slightly softer at - 3% as stronger Grains earnings (+26%) on better flour prices was offset by weaker Film contribution (-46%) due to seasonally a weaker movie line-ups in 3Q16.

Increase FY16-17E CNP by 13-11% to RM836m-1.00b as we up our Grains volume assumptions and increase margins to reflect better selling prices. We also adjust up our average USDMYR assumption to 4.10 (from 4.00) based on our current in-house forecast, resulting in higher expected contribution from Wilmar due to favourable translation.

Upgrade to MARKET PERFORM with higher TP of RM16.53. We raise our call to MARKET PERFORM (from UNDERPERFORM) as we increase our TP to RM16.53 (from RM15.00) after earnings adjustment. Our unchanged Fwd. PER of 19.5x is applied to higher FY17E EPS of 84.8 sen (from 76.7 sen). Our Fwd. PER is based on 3-year mean valuation, which we think is justified as the growth outlook in Grains and Film businesses are offset by a softer outlook in Engineering and Property segments, as well as thinner margins in the Consumer products segment due to increased distribution cost.

Source: Kenanga Research - 24 Nov 2016