PPB’s FY23 results met expectations. Its 4QFY23 earnings grew QoQ as stronger performance by associate Wilmar International (WIL), more than offset still weak but recovering earnings from other units. With overall earnings uptrend likely to continue, we raise our FY24F net profit forecast by 4%, lift our TP by 4% to RM19.10 (from RM18.40) and maintain our OUTPERFORM call.

Its FY23 core net profit of RM1,145m (excluding fair value gains of RM108m, disposal gains of RM256m (out of which RM201m is PPB’s share of WIL’s disposal gain in a Moroccan sugar unit, asset impairment of RM112m and forex loss of RM2m) met expectations.

WIL’s FY23 contribution fell YoY on exceptionally strong edible oil prices last year. Profits from PPB’s own operations did better overall in FY23 except consumer products, property and Golden Screen Cinema (GSC). Consumer products saw better YoY revenue but margins tightened. GSC ticket sales also rose YoY in FY23 but poor movie line-up caused a 4Q loss of RM140m, sinking GSC into a full-year loss of RM120m. Property was weak as it is in between finishing a project and starting another. PPB’s net cash edged down slightly QoQ, from RM770m in 3Q to end 4QFY23 at RM695m.

Its FY24-25F earnings should improve backed by the following:

1. WIL’s FY24-25F earnings are expected to benefit from easier input costs from better sugar prices as good Brazilian crop is offset by estimated drops in Indian and Thailand sugarcane harvests due to dry weather while CPO prices are expected to stay flattish

2. PPB’s regional grains & agribusiness earnings are expected to be flat following the sale of its Indonesian unit to WIL to allow WIL to merge their grains interests in Indonesia. Contribution from the other regional units should stay firm with an upward bias on soft wheat and corn prices while flour and feed demand inches up.

3. GSC’s earnings are expected to turn around as Malaysian box office has yet to surpass pre-pandemic levels. Admissions per capita is also about half those of more matured markets. Industry capacity of c.1,200 screens is also not excessive with room to expand by possibly another 25%-50%. The line-up of blockbusters should also improve compared to 4QFY23.

4. The property unit should also see better earnings as its new Kedah property project, Lumina at Bedong with RM900m GDV is scheduled for launch in the near future.

Forecasts. We raise our FY24F net profit forecast by 4% and introduce our FY25F net profit of RM2,033m (+15% YoY).

Valuations. Correspondingly, we raise our TP by 4% to RM19.10 (from RM18.40) on 16x FY24F PER, which is the average for larger capitalised integrated planters’ PER. No adjustment is made for its 3- star ESG rating as appraised by us (see Page 3). At TP of RM19.10, PPB is also trading at just under 1.0x FY24F PBV.

Investment case. PPB enjoys strong business position in consumer essentials such as flour, feed, ready-to-eat products as well as mass entertainment in ASEAN while WIL provides exposure to Chinese and Indian consumer markets. 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 - 29 Feb 2024