PPB Group (PPB)?s FY16 CNP at RM1.04b exceeded consensus estimate of RM866m at 120% but met our RM1.00b forecast at 104%, as consensus may have yet to account for Wilmar?s strong 4Q16 performance. Final dividend of 17.0 sen announced for full-year DPS of 25.0 sen, in line with our 24.4 sen forecast. Maintain FY17E CNP as we introduce FY18E earnings. Reiterate MARKET PERFORM with unchanged TP of RM17.60 based on 19.5x Fwd. PER.

Ending on a strong note. PPB Group (PPB) FY16 Core Net Profit (CNP*) at RM1.04b beat consensus RM866m forecast at 120% but came in within our RM1.00b estimate at 104%. This likely came about as consensus may have yet to account for Wilmar?s strong 4Q16 performance. Note that ex-Wilmar EBIT at RM401m beat our expected RM354m on stronger-than-expected growth in the Grains segment. A final dividend of 17.0 sen was declared, for full-year DPS of 25.0 sen, matching FY15 DPS and in line with our 24.4 sen forecast.

Grains growth. YoY, CNP rose slightly (+2%) with PBT ex-Wilmar improving 9% thanks to stronger Grains and agribusiness segment (Grains) performance (+20%) on volume improvements in Vietnam and Indonesia. Other segments were weaker: Consumer Products (-18%) on higher staff costs and thinner margins; Film exhibition & distribution (Film) (-6%) on forex losses and lower film distribution; and Environmental Engineering (Engineering) on lower completion and projects. Wilmar?s contribution recovered from 2Q16 losses to post a slight YoY decline of 2%. QoQ, CNP rose 34% in spite of PBT ex- Wilmar falling 40%, as Wilmar?s contribution jumped 52%. In its own businesses, Grains PBT weakened 25% on lower ASP and higher raw material costs, while Property reversed into RM8.2m LBT on lower rental income. Film PBT weakened 76% on a weaker movie line-up.

Selectively better outlook. Among its businesses, management noted that the Film segment should see some support from three new cinemas and a strong film line-up in 2017, while the Engineering segment is well positioned to participate in water infrastructure projects. Property segment could turn brighter as well with new development on the horizon. Meanwhile, Wilmar?s outlook is also mixed, with good Tropical Oils (TO)?s outlook in 1H17 to be moderated by seasonal Sugar business maintenance. However, long-term outlook is good with Oilseed & Grains (O&G) expansions planned after the lifting of ownership restrictions in China.

Maintain FY17E CNP at RM1.07b as we introduce FY18E CNP of RM1.22b, which implies earnings growth of 14% on the back of top-line and margin recovery in the Grains, Film and Consumer segments.

Reiterate MARKET PERFORM with unchanged TP of RM17.60 based on unchanged Fwd. PER of 19.5x applied to FY17E EPS of 90.3 sen. We maintain our mean valuation basis which reflects the overall neutral outlook for both PPB and Wilmar?s core businesses. We expect subdued investor interest in PPB as Wilmar?s 1H17 earnings should be muted with TO improvements likely offset by seasonal Sugar and O&G weakness. Maintain MARKET PERFORM on PPB for now.

Source: Kenanga Research - 01 Mar 2017