PPB reported strong FY21 Core Net Profit (CNP) of RM1,528m, exceeding our estimate by 10%, and 2% above consensus. Underpinning the good performance was associate, Wilmar International Limited (Wilmar). Wilmar’s stronger performance mitigated weaker-than-expected earnings from PPB’s own flour milling, feed meal, livestock and FMCG operations while the cinema, property and environmental engineering operations continued to report losses. Nevertheless, as the economy reopens, FY22 should see recovery from its cinema, property and engineering units with strong CPO prices lifting Wilmar’s contribution higher. However, PPB’s agribusiness and FMCG margins are likely to stay under pressure until FY23. Maintain MP and TP at RM18.90

Above expectations. PPB’s 4Q FY21 and full year CNP of RM494m and RM1528m did well as stronger contribution from Wilmar offset weaker earnings and losses from its own operations. Wilmar’s upstream oil palm & sugar as well as mid-stream food & feed processing businesses did well in FY21 even as its customer & consumer facing FMCG segment reported poorer YoY earnings in FY21.

PPB’s own FMCG operations also saw weaker earnings in FY21 due to higher product and distribution costs. The Group’s grain milling, feed and livestock business suffered losses in 4QFY21 but still managed to turn in a profit for the full year. Rising raw material and freight costs were the challenges faces by the unit. The cinema and property & mall businesses saw improvements in 4Q as the economy reopens following extensive vaccination effort by the government. However, the cinema operation was still loss making for 4QFY21 as well as the full year albeit lower losses YoY while property & mall reported better YoY earnings for the final quarter and FY21. The environmental engineering unit struggled to replenish orders in time to end 4QFY21 with a small loss but still profitable for the full year. For FY21, after having paid a 10.0 sen interim dividend, PPB declared a 25.0 sen final dividend to give total full-year dividends of 35.0 sen, lower than last year’s dividends of 46.0 sen (8.0 sen interim + 22.0 sen final + 16.0 sen special).

Outlook: Wilmar should enjoy another good year in FY22 with firm palm oil and raw sugar prices expected. Mid-stream margins from palm oil refining and sugar merchandising are also expected to fare well, offsetting poorer soyabean crushing performance on weak demand for animal feed in China. Downstream, food products/FMCG segment looks set to grow as investment to strengthen its infrastructure and distribution channel are ongoing but a more gradual improvement in margins is expected as selling price increments can only slowly catch up with cost inflation thus far.

PPB’s FMCG business is also expected to see revenue edging up but margins staying under pressure as higher selling prices continue to lag cost increments. Likewise, PPB’s grain milling & agribusiness should enjoy firmer revenue but margins will require time to recover. Thanks to the economic reopening, the cinema and property, notably the mall operations are set to enjoy a rebound in FY22 while the environmental engineering unit should inch back into profitability again. By FY23, we expect PPB to operate near pre-Covid conditions as the worst of the pandemic’s impact on the Group is probably over. We are revising up Core EPS for FY22 by 7% to 110.5 sen and by 13% for FY23.

The Group ended FY21 with a small net debt of RM124m (1% net gearing) compared to a net cash of RM671m a year ago but is still financially healthy.

Maintain MARKET PERFORM and TP at RM18.90 on Sum-of-Parts basis.

Source: Kenanga Research - 1 Mar 2022