We attended PPB?s 4Q16 Results Briefing, which was well attended by c.50 pax and came away maintaining our neutral short-term outlook for the group, though Engineering and Property segments? long-term outlook could improve. Maintain FY17-18E CNP at RM1.07-1.22b. No change to MARKET PERFORM call and TP of RM17.60.

Grains supported by overseas operations. In the Grains & Agribusiness (Grains) segment, management noted that its Indonesian and Vietnamese subsidiaries recorded good volume improvement. Going forward, price outlook is relatively stable due to good global corn and wheat stock levels. Costs should be slightly lower on switching to larger capacity vessels. Meanwhile, long-term growth prospect remains intact with Malaysian and Vietnamese mill expansions, in addition to a new collaboration with Brazillian poultry company BRF to provide finished-goods chicken products. We gather that the BRF JV will require minimal new investment as the existing plant has excess capacity for finished goods production.

Film segment continues growth, spinoffs dismissed. The Film exhibition & distribution (Film) segment should see top-line improvement with 9 new locations scheduled for 2017 (3 in Malaysia, 9 in Vietnam/Cambodia). In light of recent news reports regarding a sale of the Film division, management said that while the company has received interest from international cinema chains for GSC, they are not in any sale negotiation and ruled out the possibility of an IPO. Management added that the Film division remains one of the company?s core businesses, which should see continued earnings growth over the next few years.

Gradual improvement in Property and Engineering. In the Property segment, we understand that while sales for the Johor Southern Marina project remains relatively weak, management noted a recent pickup in inquiries, especially from foreign buyers. Meanwhile, the company aims to launch its Taman Megah (Petaling Jaya) redevelopment project with a GDV of RM500m, which should improve segment sales in the next 1-2 years. Other upcoming projects include the renovation of New World Park (Penang) and a link bridge to the upcoming MRT station at Cheras Leisure Mall (Kuala Lumpur). The Engineering segment saw some order-book improvement (RM160m as at end-2016, from RM132m in mid-2016) with management more optimistic on its outlook as it is tendering for c.RM600m worth of water and sewerage projects.

Maintain FY17-18E CNP at RM1.07-1.22b as company updates are largely priced in our estimations.

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. Our Fwd. PER of 19.5x is based on a mean valuation basis. We remain neutral on PPB?s near-term outlook given the soft local consumer outlook. With group earnings heavily contingent on its associate Wilmar?s performance, we expect the seasonally weaker 1H17 to result in subdued investor interest in PPB in the short-term.

Source: Kenanga Research - 06 Mar 2017