PPB’s 9MFY23 results met our forecast but disappointed the market. Its 3QFY23 earnings doubled QoQ due to firm commodity prices and easier input cost for upstream plantations at Wilmar International (WIL). We fine-tune up our FY23-24F net profit forecast by 2-1%, but maintain our TP of RM19.30 and OUTPERFORM call.

Its 9MFY23 core net profit (excluding RM108m of fair value gains, RM56m disposal gains and RM5m forex losses) met our expectation at 74% of our full-year forecast but disappointed the market at only 64% of the full-year consensus estimate.

WIL’s 9MFY23 contribution dipped YoY on strong edible oil prices last year. Otherwise, 3QFY23 rose 66% QoQ as palm oil prices bottomed out. PPB’s other business profits also improved YoY in 9MFY23 except for the consumer products arm and property development, which is in between concluding an old project and starting a new one. 3QFY23 consumer products improved QoQ though and so did earnings from wheat and corn milling which also picked up on easier input raw material prices but Golden Screen Cinema (GSC)’s earnings dipped QoQ due to higher costs, possibly pre-opening expenses for new cinemas at Mont Kiara and TRX. Nonetheless, PPB’s net cash more than doubled from RM303m in 1HFY23 to RM770m as of the end of 3QFY23.

Earnings should fare better moving forward underpinned by the following key factors:

1. WIL’s 4QFY23 and FY24 earnings should continue to benefit from flattish CPO prices and easier input costs even if sugar prices stay flattish or ease a little as bumper Brazilian crop is offset by lower Indian and Thai sugarcane production.

2. PPB’s grains & agribusiness earnings are expected to stay decent or even improve as input wheat and corn prices are expected to stay rangebound with a downward bias moving into FY24. Meanwhile demand for flour and feed in the region should continue trending up, even if slower than earlier expected.

3. GSC is expected to continue recovering well with the uptrend in earnings, likely in 4QFY23 and into FY24. Malaysian box office has yet to fully revert to pre-pandemic levels, admissions per capita is also 40%-50% below more matured markets while the current c.1,200 screens capacity in the sector can still grow by 25%-50%.

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

Forecasts. We fine-tune up our FY23-24F net profit forecasts by 2-1%.

We also keep our TP of RM19.30 which is based on 16x FY24F PER (in-line with the average of large integrated planters) plus a 5% premium for its 4-star ESG rating as appraised by us (see Page 3). Even at RM19.30, PPB would just be trading at 1x FY24F PBV.

We 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 to Chinese and Indian consumers markets. Its balance sheet is strong with an expected recovery in FY24. As our forecast is below consensus, we suggest gradual accumulation in the event of share price weakness. Maintain OUTPERFORM.

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 Nov 2023