Strong 2QFY22 lifted 1HFY22 Core Net Profit (CNP) to RM998m (+70% YoY) which exceeded our expectation by 15% and consensus by 4% to account for 72% of our FY22F CNP and 65% of consensus. 2QFY22 earnings rebounded strongly as milling losses turned profitable QoQ while profits from associate, Wilmar International (WIL), Cinema and Property units also surged. Upgrading FY22F/FY23F Core EPS (CEPS) by 15%/2% and TP from RM15.00 to RM17.00 as well as our call to MARKET PERFORM.

The grains & agribusiness division which mills flour and animal feed recovered from 1QFY22 loss of RM138m to a pre-tax profit of RM115m in 2QFY22. Similarly, WIL’s 2QFY22 contribution also rose 52% QoQ to RM598m (+140% YoY) on better CPO prices. As Malaysia transitions into the endemic phase starting April 2022 (where wearing of mask is still mandatory but restrictions on working/operating hours were lifted along with the re-opening of international borders) the Cinema division also turned from losses a quarter ago into PBT of RM22m while the Property division which owns malls (and some residential developments) also saw stronger PBT. QoQ, Consumer Products PBT softened a little while Engineering PBT inched up a little but their contributions are small.

Altogether the sharp QoQ turnaround from a poor 1QFY22 performance into a stellar 2QFY22 helped lifted 1HFY22 CNP to RM998m (+60% YoY). PPB ended the first half with a very small net gearing of 1.6% and proceeded to declare a higher interim dividend of 12.0 sen compared to the 10.0 sen announced for 1HFY21.

Moving forward, earnings from WIL should ease as palm oil prices have dipped by >30% since June due to a combination of seasonal supply uptrend and aggressive selling by Indonesia. Nevertheless, with the edible oils supply recovery looking fragile and demand uptick still pending, we are maintaining our target average CPO price of RM4,500/MT for FY22 and RM4,000/MT for FY23. We also expect milling contribution to normalise but remain challenging in light of still elevated commodity input prices. We are more optimistic of the Cinema division which essentially has expanded its capacity following the acquisition of MBO in March 2021. Coupled with strong content and pent-up demand following the full re-opening in April 2022, a more sustained recovery is more likely from the Cinema division. Likewise, the mall business under the Property division should also continue enjoying better footfall as Malaysia settles into a new post-Covid normal. The Consumer Products and Engineering segments are also expected to recover but more gradually.

We are revising up our FY22F CEPS by 15% to 111.8 sen and by 2% to 107.4 sen for FY23F. We are also revising up our TP from RM15.00 to RM17.00 as we replaced FY22F CEPS with FY23F CEPS against our target PER of 15x. A 5% ESG premium is further imputed in view of our 4-star score for the group.

We are maintaining our NDPS of 40.0 sen/45.0 sen for FY22/FY23 but upgrading our recommendation from UNDERPERFORM to MARKET PERFORM.

Source: Kenanga Research - 26 Aug 2022