1QFY21 core PATAMI of RM351.8m (+71% YoY) is within both our (26%) and consensus’ (25%) expectations. We expect a seasonal dip in 2QFY21 earnings – Wilmar’s low sugar crushing season and lower crush margins, while PPB’s film segment deteriorates. Downgrade to MARKET PERFORM with lower ESG-adjusted TP (SoP-derived) of RM19.80 (from RM20.70). ESG score is 82% (based on Wilmar).

Within expectations. 1QFY21 core PATAMI of RM351.8m (-14%) is within both our (26%) and consensus’ (25%) expectations. Note that our 1QFY21 core PATAMI exclude: (i) forex gain (c.RM2.1m) and (ii) FV gain on derivatives (c.RM48.3m). Absence of DPS is as expected.

Results’ highlights. YoY, 1QFY21 core PATAMI rose (+71%) mainly attributable to stronger contribution from Wilmar (109%) due to stronger demand for food products (+13%) and good soybean crush margins. QoQ, 1QFY21 core PATAMI fell (-14%) dragged by lower Wilmar’s earnings (-11%) owing to lower sales volume for: (i) food products (-7%), and (ii) feed and industrial products (-19%).

2QFY21 could be weaker. Looking ahead into 2QFY21, we expect a seasonal dip in earnings as Wilmar endures low sugar crushing season (India’s sugar crushing season – October to March; Australia – June to November) and lower crush margins. Additionally, PPB’s film segment should deteriorate further given the implementation of FMCO. Meanwhile, higher raw material costs could drag its consumer products segment. A silver lining lies in the potential for PPB’s consumer products to gain market share. From what we understand, PPB has yet to increase its product prices (vs. its competitor Gardenia’s 5-20% price increase in December 2020).

Keep FY21-22E CNP unchanged.

Downgrade to MARKET PERFORM with a lower ESG-adjusted TP of RM19.80 (from RM20.70) based on joint Sum-of-Parts between PPB and Wilmar. We value PPB (ex-Wilmar) at 20x PER, reflecting mean; Wilmar (ex-YKA) at 15x PER (+1SD from mean); YKA at 29x PER, given higher valuations commanded on ChiNext (ChiNext Index Fwd. PER c.46x). We rate PPB’s ESG score at 82% (based on Wilmar)

Source: Kenanga Research - 31 May 2021