PPB Group Berhad (PPB) posted 1H17 Core Net Profit (CNP*) of RM448m, broadly within expectations at 40% and 44% of consensus and our estimates, respectively, as 1H earnings historically made up 33% of full-year earnings. An interim dividend of 8.0 sen was announced, in line with historical trends. Maintain FY17-18E CNPs. No change to OUTPERFORM call with unchanged TP of RM18.90.

1H17 broadly within. 1H17 CNP at RM448.0m made up 40% of consensus RM1.12b forecast and 44% of our RM1.03b estimate, which we deem as broadly within considering the five-year average 1H contribution of 33% to full-year profits. An interim dividend of 8.0 sen was announced, in line with previous 1H dividend declaration. PPB’s own businesses reported PBT (ex-Wilmar) of RM156m, below our RM482m forecast at 32% on weaker Grains & Agribusiness (Grains) margins.

A tough quarter. YoY, CNP jumped 1.6x largely on higher Wilmar contribution of RM340m from merely RM11m in 1H16 as Wilmar saw a trading hit from its Oilseed & Grains (O&G) division due to soy price volatility. In its own businesses, PPB’s Grains segment PBT weakened 34% on higher wheat cost, seasonally lower sales volume and lower Indonesian selling prices due to high competition. Property PBT weakened 81% on completion of its Taman Tanah Aman project in 2016 and ongoing refurbishment in investment properties. Film contribution was also weaker (-28%) on forex losses and lower revenue from local movies. Meanwhile, Consumer Products contribution jumped 1.3x on a RM8.0m gain on land disposal, excluding which core PBT improved 21% to RM8.7m on improved bakery results. QoQ, CNP fell 72% largely as Wilmar contribution dropped 85% due to lower O&G performance and higher Sugar segment losses. For its own businesses, only Property segment saw some PBT improvement (+29%) on higher associates contribution (RM1.9m) from RM0.1m. Grains PBT weakened 41% on higher wheat costs.

Better 2H ahead. 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-ton per-day (TPD) flour mill in Pasir Gudang is scheduled for completion in mid-2017, while management is confident of better margins in 2H17 on stronger flour demand expectations. Film performance should also see growth with 9 new locations scheduled for 2017 (3 in Malaysia, 6 overseas), in addition to a better film lineups. The Property segment is set to launch its Taman Megah (Petaling Jaya) development with GDV of RM500m in 4Q17, which should improve sales over the next 1-2 years.

Maintain FY17-18E CNPs at RM1.09-1.26b as we deem the results broadly in line with our estimates. Still OUTPERFORM on PPB with unchanged TP of RM18.90 based on an unchanged Fwd. PER of 19.2x on FY18E EPS of 98.6 sen. Our Fwd. PER of 19.2x is based on an unchanged 3-year historical mean as we are net neutral on PPB and Wilmar’s core business outlooks. However, further news on Wilmar’s proposed China restructuring or listing should boost investor sentiment and potentially benefit PPB as a shareholder. Thus, we maintain our OUTPERFORM call on PPB.

Source: Kenanga Research - 25 Aug 2017