RESULTS REPORT

YTD 4Q FY16 revenue increased 3.4% vs YTD 4Q FY15, driven by an 5.7% increase in grains/agribusiness sales. Meanwhile, YTD 4Q FY16 grains/agribusiness margins came in at 9.3%, vs 9.6% YTD 4Q FY15. Group PBT rose 2.5% YTD 4Q 2016, as profits at Wilmar recovered smartly. Over 2013-2016 PPB averaged about 62% of PBT through Wilmar. Revenue in the grains, cinema and consumer product divisions are all on a steady growth trajectory. Profit growth in grains and film divisions will continue to drive operating results over the next few quarters. FY 2017 profits at Wilmar are likely to be considerably better than FY 2016 profits.

INVESTMENT RISKS

Risks to our recommendation and target price include: i) increases in the price of w heat and soybeans ii) strengthening of the MYR exchange rate, and iii) a sharp slowdown in the general level of economic activity in Malaysia and regional economies particularly China and Indonesia. The outlook for Wilmar seems generally positive, however debt levels in China are worrisome. And though we expect the CNY to weaken this year, the stronger USD will tend to support associates contribution.

RECOMMENDATION

We maintain our HOLD recommendation whilst increasing our fair value estimate to 17.88. Uncertainty in China and Europe is affecting business conditions in many major markets. However, net margins at Wilmar are expected to range between 2.2 - 2.6% over 2017. Operationally, PPB continues to strengthen. Note that a strong USD tends to increase the MYR contribution from Wilmar. Please refer to pages 5 and 6 for more reasons to include PPB in a prudent portfolio of equities.

PPB’s stock price may surprise on the upside as growth in Wilmar’s profits may be higher than we are projecting. Group operating profts are healthy and any downside in the share price likely presents a buying opportunity. Still, global economic conditions remain fragile and the ride ahead in many stock markets is likely to be a bumpy one.

COMPANY PROFILE

PPB was incorporated in Malaysia in 1968 to undertake sugar cultivation and refining. The company began oil palm cultivation in 1986, entering into flour and animal feed milling in 1987. PPB was listed in May 1972 with a paid-up capital of MYR 15 mn. Using FY16 owner equity of MYR 20.9 bn, shareholders have seen book value grow 17.8% pa since listing. PPB and its associates operate mainly food businesses in many countries throughout Asia and Europe. PPB is the largest single shareholder of Singapore listed Wilmar International Ltd (“Wilmar”).

Source: Wilson & York Securities Research - 28 Feb 2017