FY19 Core Net Profit of RM1.05b (+17%) came in within expectations while full-year DPS of 33.0 sen (4QFY19: 23.0 sen) is deemed to be slightly below. Moving into 1QFY20, we are expecting to see softer earnings, stemming from lower Wilmar’s contribution (temporary) from COVID-19 impact in tandem with the end of sugar crushing season. Post-results, we keep our MARKET PERFORM call with an unchanged SoP-derived TP of RM19.60.

No surprises. FY19 core net profit (CNP) of RM1.05b came in within expectations at 95% and 100% of our and consensus estimates, respectively. A declared dividend of 23.0 sen (full-year dividend: 31.0 sen) is deemed to be slightly below our forecast of 33.0 sen, translating to a pay-out ratio of 38.3%.

A stronger year overall. YoY, FY19 CNP rose 17%, on the back of: (i) stronger earnings from Wilmar (+15%), (ii) better contribution from Grains and Agribusiness (+17%), thanks to favourable flour prices which cushioned costlier raw materials, and (iii) sustained performances from its Film business (-0.5%) as higher revenue (+2%) was offset by steeper opex and lower virtual print fee income. For the individual quarter of 4QFY19, core earnings grew by 72%, similarly boosted by significantly better earnings from Wilmar (+98%) as well as Grains and Agribusiness (+44%), thanks to stronger contribution from the flour business. This was, however, partially shadowed by weaker Film operations (-9%), no thanks to the accelerated depreciation for GSC Pavilion assets due to its intended closure in early 2020.

QoQ, 4QFY19 CNP of RM347.9m slipped 12%, dragged by: (i) lower contribution from Wilmar (-10%) coupled with (ii) weaker film operations (-28%), similarly due to the foresaid higher depreciation costs.

Possible weakness in 1QFY20. Moving into FY20, we believe the group is likely to experience softer earnings. This is stemming from anticipation of a weaker 1QFY20 earnings from Wilmar, as (i) soybean crush margins and volume are expected to be adversely affected by COVID-19, while (ii) sugar segment is likely to register losses with the end of sugar crushing season (June to November in Australia). Moreover, the group’s film business is also expecting COVID-19-led weakness in the upcoming quarter. Nonetheless, these are expected to be partially mitigated by the group’s Grains and Agribusiness segment, as more favourable flour prices should help cushion any fluctuations in the raw material prices.

Post-results, we made no changes to our forecasts.

Maintain MARKET PERFORM on PPB with an unchanged Target Price of RM19.60 based on joint Sum-of-Parts between PPB and Wilmar. We value its Grains & Consumer Products segment at 27x PER, representing a 30% discount to QL Resources’ 3-year Fwd. PER of 38.0x; Palm Plantation segment at 31x PER, reflecting higher CPO prices and its large-cap/FBMKLCI component status; Film segment at 20.0x PER, in line with Consumer Retail peers; Sugar at 18.0x PER, and other segments at book value. Our TP implies FY20E PER of 23x (mean), while the stock is currently trading at 21.5x (-0.5SD).

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

Source: Kenanga Research - 28 Feb 2020