PPB’s 18.5%-owned Wilmar’s FY20 CNP of USD1.40b (+20% YoY), came above our (119%), but within consensus’ (97%), estimate. Special DPS of S$6.50 cents was a positive surprise. Seasonally weaker earnings in 1HFY21 for Wilmar (low sugar crushing season) but we expect 12% earnings growth in FY21. Following PPB’s c.7% share price decline (from January’s high of RM19.50), we think the name is now attractive at FY21E PER of 19.2x (-1.5SD), while offering exposure to an economy re-opening angle. We think YKA’s valuation premium (Fwd PER c.74x) is also under-appreciated. Raise FY20-21E earnings by 11-6%. Upgrade to OUTPERFORM with a higher SoP derived TP of RM20.70.

Above expectations. PPB’s 18.5%-owned Wilmar International (Wilmar)’s FY20 CNP of USD1.40b (+20% YoY) came above our estimate (119%), but within consensus’ estimate (97%) due to higher CPO price and better crush margins. FY20 FFB output of 4.03m MT (+3% YoY) is also within our forecast at 101%. 2HFY20 DPS of S$15.50 cents (including special dividend of S$6.50 cents) was declared, bringing FY20 DPS to S$19.50 cents, above our expected S$13.00 cents.

Results’ highlight. YoY, the 20% improvement in FY20 CNP to USD1.40b was mainly driven by: (i) food product, (ii) feed and industrial products, as well as (ii) plantation and sugar milling. PBT for its food products improved (18%) due to higher sales volume, while PBT from its feed and industrial products leapt (+26%) due to higher sales volume (+22%) and better soybean crush margins. Its plantation and sugar milling segment registered PBT of USD105m (vs. LBT of USD41m in FY19) mainly due to higher commodity prices.

Moving forward, while we believe soybean crush margins should remain relatively stable in 1HFY21 (recovery of hogs), we expect a seasonally weaker 1HFY21 for Wilmar. This is as its sugar division is likely to register losses entering a low crushing season, especially in 2QFY21. Australia’s sugar crushing season (June to November) has ended, while India’s (October to March) is coming to an end. Nevertheless, we believe Wilmar will register 12% earnings growth in FY21.

Raise PPB’s FY20-21E earnings by 11-6% on higher contribution from Wilmar. We raised Wilmar’s FY21-22E realized CPO prices to RM2,740/MT.

Upgrade PPB to OUTPERFORM (from MP) with a higher TP of RM20.70 (from RM18.90) based on joint Sum-of-Parts between PPB and Wilmar. We value PPB (ex-Wilmar) at 21x PER, reflecting mean; Wilmar (ex-YKA) at 16x PER (+1SD from mean); YKA at 30x PER, given higher valuations commanded on ChiNext (ChiNext Index Fwd. PER c.44x). We believe YKA’s valuation premium (presently traded at Fwd. PER c.74x) is under-appreciated and after PPB’s c.7% share price decline (from January’s high of RM19.50), the name is worth another look. PPB as a group is currently traded at FY21E PER of 19.2x (-1.5SD). PPB offers exposure to an economy re-opening angle, which we believe will grow in prominence as the vaccine rollout draws near.

Source: Kenanga Research - 23 Feb 2021