INVESTMENT HIGHLIGHTS

• 9MFY16 earnings within expectation

• 9MFY16 earnings declined but improvement is noticed in 3QFY16

• PPB’s Grains and Agribusiness division earnings improved

• Maintain NEUTRAL with unchanged TP of RM14.70

9MFY16 earnings within expectation: PPB 9MFY16’s Net Profit of RM549m was within our expectation as it accounts for 76% of our full year FY16 estimate. However, it was slightly below consensus at 67% of full year FY16 estimate as consensus may have been overly positive on Wilmar earnings which has declined yoy.

9MFY16 earnings declined but improvement is noticed in 3QFY16. 9MFY16 net profit declined 23%yoy to RM549m due to weaker earnings from Wilmar. Having said that, earnings improvement is seen with 3QFY16 net profit increased by 29% yoy to RM381m. Note that 3QFY16 earnings is also a strong turnaround against 2QFY16 net loss of RM79m. Wilmar’s Oilseeds and Grains (OAG) segment registered improved earnings with PBT of USD248m in 3QFY16 (against 2QFY16’s USD344m Loss Before Tax). Recall that 2QFY16 loss was caused by untimely purchases of soybeans in a highly volatile and disruptive market.

PPB’s Grains and Agribusiness division earnings improved. The Group’s Grains and Agribusiness (G&A) division’s 9MFY16 PBT improved by 9% yoy to RM322m due to similar growth of 9% in revenue. We gather that G&A division benefited from the higher flour sales volume in Vietnam as well as higher selling prices in Indonesia.

Maintain NEUTRAL with unchanged TP of RM14.70. PPB earnings forecast for both FY16 and FY17 are unchanged. Our Target Price is based on 19.5x Fwd. PE on FY16F earnings reflecting mean valuation. PPB’s own business operations are generally doing well. However, near term earnings outlook is neutral due to lower earnings from Wilmar.

Source: MIDF Research - 24 Nov 2016