1HFY20 Core Net Profit of RM510.0m (+25% YoY) is deemed to be within our expectation at 46% but slightly above consensus at 52%. Declared dividend of 8.0 sen is also in line. The group should remain relatively shielded moving ahead, with Wilmar’s 2HFY20 earnings expected to be anchored by the commencement of sugar crushing season and relatively stable soybean crush margins. Keep MP with unchanged TP of RM18.50.

Within our expectation. 1HFY20 core net profit (CNP) of RM510.0m came in within our expectation at 46% but was slightly above consensus at 52%. Based on the past five years’ trend, 1H typically takes up c.46% of the full-year earnings. A declared dividend of 8.0 sen is also deemed within forecast.

Results’ highlights. YoY, 1HFY20 CNP rose 25%, predominantly boosted by: (i) stronger contribution from Wilmar (+44%), (ii) higher PBT from Grains and Agribusiness which more than doubled (+112%) on the force of cheaper raw materials which overshadowed lower sales volume for flour and feed, coupled with (iii) better Consumer products’ contribution (+654%), likely due to robust demand for its bakery products during the lockdown. However, its Film segment swung into pre-tax losses of RM60.9m (versus RM39.2m PBT in 1HFY19) as business operations were heavily impacted by the closure of cinemas during MCO up until 30 June.

QoQ, 2QFY20 revenue slipped by 11% to close at RM953.3m, as all the segments saw weaker top-line performances except for its Consumer products’ segment, which was greeted with better sales performance (+4%). Despite that, 2QFY20 CNP of RM296.4m came in stronger by 39%, similarly due to tail-winds from Wilmar, Consumer products, Grains and Agribusinesses segments.

Wilmar to hold the fort. The group’s earnings are likely to remain resilient moving forward, as Wilmar’s earnings in 2HFY20 is expected to be anchored by the commencement of sugar crushing season in Australia (June to November), and relatively stable soybean crush margins as China ramps up its soybean imports. That being said, these are expected to be partially shadowed by rising CPO inventory in 2HFY20 to exert downwards pressure on CPO prices, which should drag earnings of Wilmar’s palm plantation division. As for the film segment, while the reopening of cinemas should lead to improved QoQ performance, the segment is likely to remain sluggish due to lower operating capacity to comply with mandated SOP and the postponement of major movie title releases to FY21.

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

Maintain MARKET PERFORM with an unchanged TP of RM18.50.

This is based on an updated joint Sum-of-Parts between PPB and Wilmar. Given that Wilmar’s China subsidiary – Yihai Kerry Arawana (YKA) is now pending its final registration approval for listing on ChiNext, we value Wilmar (ex-YKA) at a blended Sugar and Palm Plantation segments’ PER of 25.7x, reflecting large cap average; YKA at 26.4x PER, given higher valuations commanded on ChiNext (ChiNext Index Fwd. PER of c.44x); PPB at a blended Grains & Consumer products and Film segments’ PER of 23.6x PER and other segments at book value. Our TP implies FY21E PER of 21x, while the stock is currently trading at 21.8x (+0.5SD over its 3-year mean). Risks to our call include: (i) better/weaker-than-expected crush/refining margin, and (ii) better/worse commodity price trends

Source: Kenanga Research - 28 Aug 2020