INVESTMENT HIGHLIGHTS

• Expect a strong FY17 earnings for PPB

• Wilmar FY17 earnings is above our expectation

• Wilmar’s Oilseeds and Grains segment is the star performer

• Wilmar to list its China operations soon?

• Increase PPB earnings estimate

• Upgrade to BUY with TP of RM19.46

Expect a strong FY17 earnings for PPB. PPB Group Berhad (PPB) is expected to release its FY17 financial result on 28-February. We believe that the FY17 earnings should be stronger yoy. This is in line with Wilmar FY17 Core Net Profit (CNP) of USD1.05b which has shown decent earnings growth of 7% yoy.

Wilmar FY17 earnings is above our expectation. Wilmar’s FY17 CNP of USD1.05b is above our expectation at 108% of our estimate due to better than expected crush margin in the Oilseeds and Grains (OAG) division. Against consensus, Wilmar’s CNP is in line at 98% of consensus estimate. A final dividend of 7.0 SGD cents is announced and this is above our expectation of 5.0 SGD cents.

Wilmar’s Oilseeds and Grains segment is the star performer. The good earnings growth is caused by strong earnings growth in the Oilseeds and Grains segment. OAG segment registered PBT of USD735m (against FY16's PBT of USD251m) due to higher sales volume and good crush margins. However, Tropical Oils segment PBT declined 38% yoy to USD426m due to lower downstream margins.

Wilmar to list its China operations soon? Wilmar mentioned that its internal restructuring of the Group’s China operations, with a view to a possible separate listing, has been largely completed. However, it mentioned that it is still at evaluation stage. We are positive on the news and believe that the corporate exercise will be completed eventually either in FY18 or 1HFY19.

Increase PPB earnings estimate. We have increased our FY17 CNP estimate by 12% to RM1.07b. We also maintain our FY18 CNP estimate by 14% to RM1.12b. We have imputed higher crush margin in the OAG division.

Source: MIDF Research - 23 Feb 2018