PPB Group Berhad (PPB)’s 9M17 CNP at RM832m exceeded consensus’ expectation at 81% but came in within ours at 76%. No dividend was announced, as expected. Maintain FY17-18E CNP of RM1.09-1.18b. Reiterate OUTPERFORM on unchanged TP of RM19.00.

9M17 beats consensus, within our forecast. 9M17 CNP of RM832m beat consensus forecast of RM1.03b at 81% but is within our RM1.09b estimate at 76%. For its own businesses, PBT contribution at RM273m was on the softer side at 62% of our expected RM441m likely on tighter Grains margins and lower Property recognitions. No dividend was announced, as expected.

Robust Wilmar. YoY, 9M17 CNP rose 54% as Wilmar’s contribution doubled on the back of its Oilseed and Grains (O&G) segment recovery (+6.2x) on strong volumes and positive crush margin, though its Tropical Oils (TO) segment softened 36% on lower biodiesel contribution. For its own businesses, the Grains and Agribusiness (G&A) segment’s PBT weakened 27% on volatile raw material cost. Property contribution was lower as well (-78%) post-completion of its Taman Tanah Aman project in 2016. QoQ, CNP tripled to RM384m as Wilmar’s contribution jumped 5.6x with improvements in all key segments (O&G, TO and Sugar). PPB’s own businesses also saw improvement with Grains jumping 1.7x on higher volume at its new Southern Vietnam mill, though Film Exhibition and Distribution (Film) segment’s PBT softened 46% to RM9.8m on higher operating cost and lower contribution from film distribution.

Organic growth. We maintain our positive view on PPB as we expect to see organic growth in its key segments, namely: (i) Grains business- 500 metric ton (MT)/day capacity expansion at Pasir Gudang in 4Q17, (ii) Films location expansions (2x in Malaysia, 4x in Vietnam) between 3Q-4Q17, and (iii) Property segment’s launch of its mixed development project in Taman Megah, Petaling Jaya with an estimated RM500m GDV. We are also positive on Wilmar’s 4Q17 prospects as management expects continued positive crush margins and good volume. Sugar business should continue to see positive 2H contributions, while we think the TO segment should see improvement on seasonally better production and better CPO & PK price stability.

Maintain FY17-18E CNP of RM1.09-1.18b as results are in line with our expectations.

Reiterate OUTPERFORM on PPB with unchanged TP of RM19.00 based on Fwd. PER of 19.2x sen applied to FY18E EPS of 99.1 sen. Our Fwd. PER of 19.2x is based on an unchanged 3-year historical mean as we are long-term neutral on PPB and Wilmar’s core business outlook. Nevertheless, we are short-term positive on expansions in PPB’s own core businesses while Wilmar’s proposed China listing should boost investor sentiment and potentially benefit PPB as a shareholder. Towards the medium-term, however, investors should keep in mind Wilmar’s seasonal 1H slowdown pattern due to maintenance activities heading into early 1Q18.

Source: Kenanga Research - 24 Nov 2017