PPB’s 18.5%-owned Wilmar’s 1HFY21 CNP of USD730m (+31% YoY), came within both our/consensus’ estimate (at 46%). FFB output (49%) and DPS of SGD0.05 was as expected. Food product segment will continue to face high feedstock prices, while soybean crush margins should improve (on hog recovery). Sugar performance should improve in line with sugar crushing season in Australia and India. However, the growing Delta virus variant is a wildcard. Maintain MP with a lower rolled-over SoP-derived TP of RM19.40.

Within expectations. PPB’s 18.5%-owned Wilmar International (Wilmar)’s 1HFY21 CNP of USD730m (+31% YoY) came within both our/consensus’ estimate (at 46%) with us expecting a sequential improvement in 2HFY. 1HFY21 FFB output of 2.07m MT (+3% YoY), at 49% of our forecast and DPS of SGD0.05 are also within expectations.

Results’ highlight. YoY, 1HFY21 CNP rose (+31%) mainly from stronger: (i) feed and industrial products PBT (+29%) on better refining margins which overshadowed low soybean crush volume and margins as well as (ii) plantation and sugar milling PBT of USD164m (vs. LBT of RM83m) on higher CPO price. Meanwhile, food products’ segmental PBT fell (-13%) from higher feedstock prices. HoH, 1HFY21 CNP declined (-13%) mainly dragged by lower segmental PBT from food products (-35%) on lower volume and margins from higher feedstock prices.

Improvements in 2HFY21. The group’s food products segment is still expected to be impacted by high feedstock prices, although partial mitigation from some selling price adjustments could be possible. Soybean crush margins should improve following China’s hog herd recovery. Meanwhile, Australia’s on-going sugar crushing season (June to November) and India’s upcoming season (October to March) should lend a boost to 2HFY21 earnings. That said, a change in strategy from China and/or Australia to combat the growing Delta variant could derail 2HFY21’s outlook.

No changes to earnings estimate.

Maintain MARKET PERFORM but with a lower rolled-over TP of RM19.40  (from RM19.80) based on joint Sum-of-Parts between PPB and Wilmar. We now value PPB (ex-Wilmar) at 18x PER, reflecting -1SD from mean (from 20x PER; mean) on slower economic reopening; Wilmar (ex-YKA) at 14x PER, reflecting mean (from 16x PER; +1SD) on ESG discount; YKA at 27x PER, justified by higher valuations commanded on ChiNext (ChiNext Index Fwd. PER c.38x).

Source: Kenanga Research - 12 Aug 2021