INVESTMENT HIGHLIGHTS

• FY16 earnings could surprise on the upside due to strong earnings from Wilmar

• Wilmar’s Oilseeds and Grains segment is profitable in 4QFY16

• We increase PPB FY16 earnings estimate but maintain FY17 estimate

• Maintain NEUTRAL with TP of RM16.80

FY16 earnings could surprise on the upside. PPB Group Berhad (PPB) is expected to release its FY16 financial result on 28-Feb and we believe that the earnings could surprise on the upside. Yesterday, Wilmar reported strong FY16 Core Net Profit (CNP) of USD977m which is above expectation as it makes up 137% of ours and 122% of consensus estimate. Wilmar’s sugar division registered exceptionally strong earnings in the 4QFY16 as it has been helped by season extension led to higher volume of canes crushed as well as increase in sugar prices. Historically, earnings contribution from Wilmar is between 65% to 70% of PPB Group.

Wilmar’s Oilseeds and Grains segment is profitable in 4QFY16. Wilmar’s Oilseeds and Grains (OAG) segment remains profitable with PBT of USD178m in 4QFY16 (against 3QFY16’s PBT of USD248m and 2QFY16’s USD344m Loss Before Tax). Recall that 2QFY16 loss was caused by untimely purchases of soybeans in a highly volatile and disruptive market.

We increase PPB FY16 earnings estimate but maintain FY17 estimate. In view of stronger than expected earnings from Wilmar, we have increased PPB FY16 CNP by 19% to RM872m. However, PPB’s FY17 CNP is maintained at RM910m as we think that the exceptionally strong quarter for Wilmar’s sugar division is unlikely to recur in FY17.

Maintain NEUTRAL with TP of RM16.80. Our Target Price is based on 1.0x Book Value.

Source: MIDF Research - 21 Feb 2017