1QFY20 Core Net Profit of RM213.6m (-13% YoY) missed expectations. Moving ahead, the group is likely to be relatively shielded from the impact of Covid-19, stemming from an expected solid Wilmar’s contribution from steadying soybean crush margins. However, this is likely to be slightly overshadowed by its Film segment still reeling from the pandemic effects. Keep MARKET PERFORM with higher SoP-derived TP of RM17.60 as we roll forward our valuation base year to FY21E.

Below expectations. 1QFY20 core net profit (CNP) of RM213.6m missed expectations at 18% and 19% of our and street’s estimates, respectively, mainly due to lower-than-expected contribution from Wilmar and Film segment. No dividend was announced, as expected.

Poorer set of results. YoY, 1QFY20 CNP dropped 13%, largely dragged by: (i) weaker earnings from Wilmar (-15%), (ii) lower contribution from Grains and Agribusiness (-9%), no thanks to lower ASP for livestock as well as softer contribution from its Indonesia flour mills, and (iii) RM19.5m losses from its Film segment (versus RM17.8m earnings in 1QFY19) as the closure of cinemas and postponement of movie releases amid Covid-19 curtailed cinema admission by 42%.

QoQ, 1QFY20 revenue and CNP slipped 10% and 39%, respectively, similarly dragged by the foresaid weaknesses from Wilmar, and Film, Grains and Agribusiness segments.

Wilmar holding the fort. The group is likely to be relatively shielded from the impact of Covid-19 moving forward. This is mainly anchored by an anticipated sound contribution from Wilmar in the coming quarter, which is backed by steadying soybean crush margins as China’s virusled lockdown impact is mostly limited to 1QFY20. Nonetheless, these are expected to be slightly mitigated by the group’s film segment where its near-term earnings visibility is hugely impacted by the current pandemic outbreak, as cinemas all around the world are faced with mandated restrictions and closures with majority of the blockbuster movies deferred to the later part of the year. Meanwhile, sturdy demand in the Grains and Agribusiness segment’s flour milling business should help offset the weaker ASP in its livestock farming business.

Post-results, we tweaked FY20E and FY21E earnings lower by 6.7% and 1.9%, respectively, as we pencilled in losses for its Film segment as well as lower CPO forecast for FY20 namely at RM2,300 and for FY21 at RM2,400 (from RM2,550).

Maintain MARKET PERFORM with a higher Target Price of RM17.60 (from RM17.00) as we roll forward our valuation base year to FY21E. This is based on joint Sum-of-Parts between PPB and Wilmar. We value its Grains & Consumer Products segment at 25x PER, representing a 30% discount to QL Resources’ 3-year Fwd. PER of 36.0x; Palm Plantation segment at 26x PER, reflecting lower CPO prices and its large-cap/FBMKLCI component status; Film segment at 20.0x PER, in line with Consumer Retail peers; Sugar at 15.0x PER, and other segments at book value. Our TP implies FY21E PER of 20x (mean).

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 - 1 Jun 2020