PPB Group Berhad (PPB) 1Q17 Core Net Profit (CNP*) at 33% and 32% of consensus and our estimates were broadly within expectations, as we expect lower proportion of Wilmar contributions on a weaker USD in coming quarters. No dividend announced, as expected. No change to FY17-18E CNP. Maintain OUTPERFORM call with unchanged TP of RM19.35.

Broadly within estimates. PPB recorded 1Q17 CNP of RM351m, which made up 33% of RM1.07b full-year consensus estimate and 32% of our full-year forecast of RM1.09b. We deem this broadly within expectations, as we expect Wilmar?s proportion of earnings contribution (currently 76%) to revert to c.65% as USD weakens in the quarters ahead, towards our more conservative USDMYR4.15 assumption. PPB?s own businesses reported EBIT (ex-Wilmar) of RM94m, within our full-year RM374m forecast at 25%. No dividend was announced, as expected.

A mixed bag. YoY, CNP improved 35%, largely as Wilmar contribution jumped 63% to RM296m, while PPB?s own EBIT weakened 15%. The Film segment saw 14% lower revenue and 39% lower PBT on a weaker Chinese New Year movie line up and the rescheduling of a blockbuster title to 2Q17. This was partly offset by a 3.8x jump in Consumer Product (Consumer) segment PBT due to asset disposal gains (RM8m), excluding which the segment PBT rose 67% to RM4.3m, thanks to stronger bakery results. QoQ, CNP weakened 28% on lower Wilmar contribution (-34%), compounded by weaker Grains PBT (-32%) due to higher Malaysian raw material costs, lower selling prices in Vietnam, and forex translation losses. Film performance, however, recovered to RM23m (from RM2.4m) on lower forex losses, while Property reversed losses to result a PBT of RM2.7m on higher sales recognition.

Expansions to drive mid-term growth. We are positive on the Grains, Film and Property segment prospects thanks to expansions and new project launches due later in the year. The Grains segment should see a boost as its new 500 tons-per-day (TPD) flour mill in Pasir Gudang is scheduled for completion in mid-2017. Film performance should also see growth with 9 new locations scheduled for 2017 (3 in Malaysia, 6 overseas), in addition to a better film line- up. The Property segment is set to launch its Taman Megah (Petaling Jaya) development with GDV of RM500m, which should improve sales over the next 1-2 years.

Maintain FY17-18E CNP at RM1.09-1.26b as we deem the results in line with our estimates.

Reiterate OUTPERFORM on PPB with unchanged TP of RM19.35 based on an unchanged Fwd. PER of 19.5x applied to average FY17-18E EPS of 99.2 sen. Our valuation basis is unchanged at mean levels given an overall stable outlook for PPB and Wilmar?s aggregate businesses. Meanwhile, its associate Wilmar is looking to restructure and possibly list its very sizable China operations. We think the positive investor sentiment should spill over to PPB, which may well reap further rewards from the possible listing as an 18.6% shareholder. Thus we remain OUTPERFORM on PPB.

Source: Kenanga Research - 26 May 2017