Investment Highlights

• Expect decent 3QFY17 earnings for PPB

• Wilmar’s 9MFY17 earnings within expectation

• Wilmar’s 9MFY17 CNP grew 74%yoy

• Maintain PPB’s FY17 earnings estimate

• Maintain NEUTRAL with TP of RM17.69

Expect decent 3QFY17 earnings for PPB. PPB Group Berhad (PPB) is expected to release its 3QFY17 financial result on 23 November. We believe that the 3QFY17 earnings should be weaker on-year but stronger on-quarter. This is in line with Wilmar’s 3QFY17 Core Net Profit (CNP) of USD324m which declined 16%yoy but surged 768%qoq. Overall 9MFY17 should remain higher against 9MFY16 due to strong 1HFY17 result.

Wilmar’s 9MFY17 earnings within expectation. Wilmar’s 9MFY17 CNP of USD674m met our expectation at 69% of our full year CNP estimate. However, the CNP came in at only 60% of consensus full year estimate. We believe that consensus may have been too optimistic on the Tropical Oil’s downstream segment margin. As expected, no dividend is announced in the third quarter.

Wilmar’s 9MFY17 CNP grew 74%yoy. The strong earnings growth is caused by strong earnings growth in the Oilseeds and Grains segment. OAG segment registered PBT of USD528m (against last year's PBT of USD73m) due to higher crush volume and good crush margins. However, Tropical Oils segment PBT declined 36%yoy to USD321m due to lower downstream margins.

Maintain PPB FY17 earnings estimate. We maintain our FY17 CNP estimate of RM945m. We also maintain our FY18 CNP estimate of RM947m. Historically, Wilmar contribution to PPB profit is the range of 60% to 70% and we expect this trend to remain in FY17 and FY18.

Maintain NEUTRAL with TP of RM17.69. Our Target Price is based on 1.0x Book Value. Despite our bullish view on palm oil prices, PPB exposure to pure upstream plantation is diversified through Wilmar hence we expect it to benefit less than other plantation companies.

Source: MIDF Research - 14 Nov 2017