1Q19 core PATAMI of RM246.5m (+25%) and absence of dividends are within expectations. The group’s fundamentals could remain heavily influenced by commodity trends (i.e. grains & agribusiness and Wilmar). At the meantime, focus on other key segments in consumer products, film and engineering might yield medium-term results. Maintain UNDERPERFORM and TP of RM16.00 based on SoP valuation.

1Q19 within. 1Q19 core PATAMI of RM246.5m is within estimates, making up 21%/20% of our/consensus expectations. No dividend was declared, as expected.

YoY, 3M19 revenue saw a flattish trend (+1%) to RM1.16b, as overall segment performance was stagnant. Key movements came from: (i) the grains & agribusiness segment (+2%) on higher sales volumes, and (ii) environmental engineering & utilities (-16%) owing to timing of project revenue recognition. However, group PBT expanded by 34% to RM279.9m, thanks to better margins from the grains & agribusiness (+79%) possibly from more favourable wheat prices and milling efficiency. Associate contributions from Wilmar grew to RM193.5m (+33%) driven by the strong tropical oils segment’ results. Adjusting for forex, 1Q19 core PATAMI registered at RM246.5m (+25%).

QoQ, 1Q19 revenue plateaued (-1%) as better sales of consumer products (+7%, i.e. bakery products) were offset by slower take-up in film exhibition & distribution (-10%) and less revenue recognised in the environmental engineering segment (-38%). The better 1Q19 core PATAMI (+15%) was mainly led by Wilmar’s solid earnings (+24%).

Solace in flat-lining top-line. The group’s prospects appear to be mostly unfazed by ongoing economic challenges, indicating strong leverage from its dominant market positioning. While being stable, the group looks to be well rooted to benefit from changes in commodity markets (i.e. in its grains & agribusiness and Wilmar performance). Although other segments could remain quiet, the film exhibition & distribution segment could gain traction from more cinema openings and refurbishment of existing locations while the environmental engineering & utilities segment replenishing its order-book (c.RM320m) should keep the segment busy in the near-term. New distribution agreements and a halal-certified frozen-food factory in 2Q19 could boost Consumer Products performances.

Post-results, we tweak FY20E CNP by +0.3% for housekeeping purpose.

Maintain UNDERPERFORM with an unchanged TP of RM16.00 based on joint Sum-of-Parts between PPB and Wilmar. We value Grains & Consumer Products segment at 21.7x representing a 30% discount to QL Resources’ 3-year Fwd. PER of 31.0x; Palm Plantation segment at 24.7x, reflecting its FY19E FFB growth prospect of 5% and its large-cap and FBMKLCI component statuses; Film segment at 20.0x, in line with Consumer Retail peers; Sugar at 18.0x, in line with MSM’s valuation, and other segments at book value. Our TP implies FY20E PER of 18.7x, while the stock is currently trading at 21.7x (+1.5 SD). Valuations appear overstretched, likely having priced in the positives above. Hence, we recommend investors to take profit.

Risks to our call include: (i) better-than-expected crush/refining margin, (ii) more favourable commodity price trends, and (iii) strongerthan-expected sales volume and consumer demand.

Source: Kenanga Research - 30 May 2019