Key takeaways from its FY22 results briefing are (i) strong demand recovery with (ii) robust earnings to follow suit. Core business revenues either exceeded pre-pandemic levels or came very close. Margins were challenging in FY22 but should start improving in FY23 with further recovery come FY24. We believe its current share price has imputed in a weaker FY23F CEPS but market should start to factor in a pending recovery around mid-2023. Maintain OUTPERFORM and TP of RM19.30.

FY22 revenue already surpassed pre-Covid levels but margins were compressed. Therefore, the strong FY22 profit was due largely to record contribution from associate-Wilmar International (WIL). However, with WIL’s earnings expected to dip in FY23, PPB’s CEPS is also expected to trend accordingly before recovering subsequently on growth momentum from PPB’s non-plantation earnings as well as from better WIL’s earnings in FY24.

Grains & agribusiness. Post-Covid demand for flour and feed meals led to record FY22 revenue of RM4,656m (+26% YoY). The guidance is for more investments in China as well as expansion in Vietnam. In Malaysia where there is surplus milling capacity, the group is broadening its range of flour-based branded convenient food products, notably under “Massimo”. This enables the capture of both milling and bakery products margins under one roof (note bakery products is under PPB’s “Consumer products” segment) and grow offtake from its own mills.

Consumer products also saw record FY22 revenue of RM751m (+17% YoY) with margins inching up since 2QFY22. Economic reopening spurred greater demand for ready-to-eat canned, frozen and bakery products like bread. While higher bread prices can still grab headlines, in general, prices of convenient food are less closely scrutinised as essential ones. Further growth in product range, scale and distribution channel from this segment can be expected.

Film exhibition & distribution FY22 revenue surged 342% YoY but fell 7%, shy of FY19’s record. Nonetheless, FY23 is starting the year with 502 screens (>20% more than a year ago) with additional 23 more screens by end FY23. Coupled with encouraging demand, new offerings as well as international and local contents, the prospects look positive.

Property also reported record FY22 revenue after having completed and sold most of the Megah Rise units. Looking ahead, the group will be launching 221 units of single-storey terraces at Bedong in Kedah soon while tenancy at its Cheras and Petaling Jaya malls are improving.

Maintain CEPS, TP and OUTPERFORM. Current TP of RM19.30 is based on FY23F CEPS at 15x PER plus a 5% premium for its 4-star ESG rating as appraised by us. Key investment merits for PPB include: (i) strong market position in essential food as well as convenient readyto-eat food segments, (ii) after suffering tight margins in FY22, higher YoY margins are likely over FY23/24, (iii) PPB’s cinema and mall earnings are normalising on footfall recovery post pandemic reopening, and (iv) slower earnings from WIL is already largely reflected in the ratings given undemanding Price/NTA of 0.9x.

Risks to our call include: (i) weather impact on edible oil supply, (ii) unfavourable commodity prices fluctuations, and (iii) production cost inflation.

Source: Kenanga Research - 6 Mar 2023