PPB Group Berhad (PPB)’s FY17 CNP at RM1.22b beat consensus at 110% but came within our estimate at 104%. A final dividend of 22.0 sen was announced, for full-year dividend of 30.0 sen, in line with our estimated 28.7 sen. Adjust up FY18E CNP by 4% to RM1.22b, while introducing FY19E CNP of RM1.23b. We maintain OUTPERFORM on PPB with higher TP of RM19.85 (from RM19.25).

FY17 above consensus. PPB recorded FY17 CNP of RM1.22b, beating consensus’ RM1.11b forecast at 110% but within our RM1.17b forecast at 104%. A final dividend of 22.0 sen was announced, bringing full-year DPS to 30.0 sen, which we deem in line with our 28.7 sen forecast. This implies a dividend yield of 1.7% and pay-out ratio of 29%.

Softer Grains performance. YoY, FY17 CNP improved 18% backed by higher share of Wilmar contribution (+29%) on strong Oilseeds & Grains (O&G) PBT (+1.9x) although Tropical Oils (TO) and Sugar segments performed weaker at -38% and losses of USD25m, respectively. For its own businesses, Grains saw the highest decline at -36% as margins tightened on unfavourable forex and higher raw material prices. Other segments (Film, Environmental Engineering, Property) also saw declines of 8% to 64%. Consumer Products PBT improved 8% but after excluding a one-off land sale at RM8m, segment core contribution softened 8% to RM19.5m. QoQ, 4Q17 CNP was flat on stronger Wilmar contribution (+15%) as the Grains and Consumer Product divisions saw 67% and 65% PBT decline on tighter margins, respectively. Film segment improved 30% on higher blockbuster releases, while Engineering division PBT doubled on contribution from new projects. Property also improved 9% on better associates’ contribution.

Expansion mode. We believe prospects remain overall favourable with expansions in Grains (new plant in Pasir Gudang), Films (expansions in Malaysia and Vietnam), and Property (launch of Megah Rise project in Petaling Jaya in Nov 2017). Wilmar’s prospects are also decent in 1Q18 with the possibility of lower Sugar earnings volatility on their shift in marketing strategy. TO should see better performance in 2H should the Indonesian government expand biodiesel quotas, while O&G outlook remains favourable on positive crush margins in China.

Upping FY18E CNP by 4% to RM1.22b as we introduce FY19E CNP of RM1.23b. We up our FY18E CNP as we tweak our Grains revenue growth and associate earnings assumptions to reflect on-going expansions. We also introduce our FY19E CNP of RM1.23b, implying 1% earnings growth.

Maintain OUTPERFORM with higher TP of RM19.85 (from RM19.25) based on unchanged Fwd. PER of 19.2x applied to average of FY18- 19E EPS at 103.5 sen (from 100.3 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, with better stability on Wilmar’s earnings and ongoing expansion plans in most key businesses, we expect PPB to see good earnings performance in the medium term. Wilmar’s proposed China listing should boost investor sentiment and potentially benefit PPB as a shareholder as Wilmar management has indicated the likelihood of special dividend post listing.

Source: Kenanga Research - 01 Mar 2018