PPB’s 1HFY23 results met our expectations but disappointed the market. Its 1HFY23 core net profit plunged 58% due to weak soft commodity prices. However, we expect a stronger 2H on firmer prices and demand, and lower input cost. We fine-tune down our FY23-24F core net profit forecasts by 4% and 1%, respectively, but maintain our TP of RM19.30 and OUTPERFORM call.

Its 1HFY23 core net profit came in at only 43% of our full-year forecast. However, we consider the results within our expectations as we expect a stronger 2H on firmer prices and demand for soft commodities, coupled with a more benign input cost. However, at only 29% of the full year consensus estimate, we consider its 1HFY23 results below market expectations.

WIL’s 1HFY23 core net profit fell 60% YoY on weaker commodity prices which affected its oil palm upstream business as well as the ASP of its food business which processes, markets and distributes cooking oil, rice and the likes of wheat flour and sugar. This was particular so in 2QFY23 when WIL reported very soft quarterly earnings as commodity prices weakened. Excluding WIL, PPB’s own 1HFY23 earnings did better except for the property unit which is in between concluding an old project and launching a new project, hence minimal profits to be recognised. Consumer products demand saw some softness in 2QFY23 but was more than offset by earnings from grain milling which recovered well QoQ and YoY on easier input prices of wheat and corn. Earnings from Golden Screen Cinema (GSC) also continued to gain from post Covid normalisation. Compared to 1QFY22’s net debt of RM184m (1% net gearing), PPB ended 2QFY23 with net cash of RM303m. The group declared a 12.0 sen interim dividend which is the same as last year’s first half interim dividend.

We expect WIL and PPB’s own operations to fare better in 2HFY23 due to the following reasons:

1. Whilst WIL’s 1HY23 CNP may have slipped 72% YoY on a weak 2QFY23 performance, it was in line with our full-year forecast. Moving ahead, a better 2HFY23 is expected (which is also consistent with WIL’s guidance) thanks to easier input costs, steadier selling prices and continual recovery in demand albeit slower than expected.

2. PPB’s own grains & agribusiness earnings for 2HFY23 from flour and feed milling should continue to improve further even if demand recovery has been slower than expected, offset by better margins from softer raw material prices such as wheat and maize.

3. GSC is expected to continue recovering well with the uptrend in earnings likely in 2HFY23 and FY24.

4. The property unit is likely to see better earnings only in FY24, when its new Kedah property project is scheduled to be launched.

Maintain OUTPERFORM and TP of RM19.30. Despite downgrading FY23F and FY24F CNP slightly by 4% and 1%, respectively, we continue to like PPB’s strong business position in consumer essentials such as flour, feed, ready-to-eat products as well as mass entertainment in ASEAN. Through WIL, PPB also enjoys exposure into Chinese and Indian consumers markets. Balance sheet is strong and a recovery in FY24 is still expected. As our forecast is below consensus, we suggest gradual accumulation in the event of share price weakness.

Risks to our recommendation include: (i) weather impact on commodity supply and prices, (ii) regulatory changes affecting prices of essential goods, and (iii) production cost inflation.

Source: Kenanga Research - 30 Aug 2023