INVESTMENT HIGHLIGHTS

• Acquiring 16.8% stake in Hillcrest Gardens Sdn Bhd

• Valuation of RM55 per square foot is fair

• Positive on the news as PPB cash is better utilised

• Earnings estimates maintained

• Maintain BUY with higher TP of RM21.16

Acquiring 16.8% stake in Hillcrest Gardens Sdn Bhd. PPB Group Berhad (PPB) has announced that it is acquiring a 16.8% stake in Hillcrest Gardens Sdn. Bhd. (Hillcrest) from Lembaga Tabung Angkatan Tentera (LTAT) for RM59.1m cash. Kuok Brothers Sdn Bhd (KBSB) currently owns 51.9% stake in Hillcrest. Note that KBSB is also the major shareholder in PPB.

Valuation of RM55 per square foot is fair. The deal values Hillcrest at RM351.6m. As Hillcrest owns in total 147.78 acres of land, valuation is RM55 per square foot. Out of the total 147.78 acres of land, 85.84 acres are located at Taman Puchong Utama. The remaining 61.94 acres are located at Taman Seri Gombak. In view of the strategic location of these lands, we believe that the valuation is fair as it is within the range of market price for these areas.

Positive on the news as PPB cash is better utilised. We believe that the investment in Hillcrest represents a good opportunity for PPB to better utilise its cash. Note that PPB has net cash of RM558m as of endFY17. We expect Hillcrest to launch its property development in less than 3 years as Taman Puchong Utama is a mature area, hence high likelihood of good take up rate.

Earnings estimates maintained. We maintain our FY18 earnings estimate of RM1.13b. We also maintain our FY19 earnings estimate of RM1.15b. Earnings contribution from Hillcrest is expected to kick in earliest from FY2021 onwards.

Maintain BUY with higher TP of RM21.16. We have applied valuation methodology of 1.2x Book Value (previously 1.1x Book Value) due to PPB’s better cash utilisation. Seperately, the positive newsflow surrounding potential Wilmar’s China operations IPO should keep its share price uptrend intact hence our BUY call.

Source: MIDF Research - 27 Apr 2018