PPB’s 18.5%-owned Wilmar’s 1HFY20 CNP of USD559m (+23% YoY), came within our/consensus estimates at 49%/45%. Both 1HFY20 FFB output of 1.91m MT (+0.5% YoY) and DPS of S$4.0 cents were also within expectations. Moving forward, 2HFY20 earnings should be anchored by: (i) commencement of sugar crushing season in Australia, and (ii) stable soybean crush margins. However, an expected decline in CPO price could drag its palm plantation division. No changes to earnings estimate. Maintain MARKET PERFORM with an unchanged SoP-derived TP of RM18.50.

Within expectations. PPB’s 18.5%-owned Wilmar International (Wilmar)’s 1HFY20 CNP of USD559m (+23% YoY) came within expectations, accounting for 49%/45% of our/consensus estimates. 1HFY20 FFB output of 1.91m MT (+0.5% YoY) is also within our forecast at 48%. An interim dividend of S$4.0 cents was declared, as expected.

Results’ highlight. YoY, the 23% improvement in 1HFY20 CNP to USD559m was mainly driven by: (i) feed and industrial products, as well as (ii) food products segments. PBT from its feed and industrial products leapt (+105%) due to higher sales volume (+10%) and better soybean crush margins (post African swine fever) which resulted in +1.3ppt improvement in PBT margin. For its food products segment, the 29% increase in sales volume in its consumer products (due to higher virus-led household demand) outstripped the decline in sales volume of its medium pack and bulk (-7%), due to weaker HORECA (hotel/restaurants/catering) demand as a result of lockdowns. This resulted in 21% improvement in segmental PBT for food products. (Note that the group has adopted semi-annual reporting and a new segmental classification – 2HFY19 segmental figures are not available)

Sugar crushing season begins. We expect Wilmar’s earnings in 2HFY20 to be anchored by: (i) commencement of sugar crushing season in Australia (June to November), with (ii) soybean crush margins remaining relatively stable as China ramps up its soybean imports. However, we anticipate rising inventory in 2HFY20 to exert downwards pressure on CPO prices, which should drag earnings from its palm plantation division.

No changes to earnings estimates as results were within expectations.

Maintain MARKET PERFORM on PPB with an unchanged Target Price of RM18.50 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 29.5x PER, reflecting large cap average and 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 FY20E PER of 21x (mean), while the stock is currently trading at 21.6x (close to mean)

Source: Kenanga Research - 12 Aug 2020