INVESTMENT HIGHLIGHTS

• Wilmar contribution increased 16%yoy to RM376m

• PPB’s Grains and Agribusiness division EBIT improved 30%yoy

• Weaker earnings from cinema and consumer division

• Maintain NEUTRAL with higher TP of RM17.63

PPB Group Berhad (PPB) organised an analyst briefing yesterday and we returned feeling positive on the Company’s long term prospect. This is due to long term stable earnings prospect seen from Wilmar, improved earnings from PPB’s Grains and Agribusiness division and its superior balance sheet with net cash of RM684m. Key takeaways from the briefing are as below:

Wilmar contribution increased 16%yoy to RM376m. We gather that Wilmar contribution to PPB profit before tax increased 16%yoy to RM376m in the 1HFY18. This is in line with improved 1HFY18 earnings at Wilmar (net profit +30% to USD520m). Recall that Wilmar Oilseeds & Grains (OAG) segment PBT jumped 73%yoy to USD463m due to higher crushing volumes and margins. Wilmar’s Tropical Oils segment PBT improved 20%yoy to USD257m due to better performance from midstream and downstream businesses.

PPB’s Grains and Agribusiness division EBIT improved 30%yoy. Grains and Agribusiness (G&A) division performed well with EBIT increase of 30%yoy to RM73m. This is caused by 6% increase in revenue to RM1.54b due to higher sales volume from all flour mills. Margin has also improved due to lower raw material costs.

Weaker earnings from cinema and consumer division. PPB’s Film Exhibition & Distribution (or “Cinema”) EBIT declined 28%yoy to RM26m due to losses from the film distribution business as movie titles released were weaker compared to previous year. For consumer products, EBIT declined 46%yoy to RM10m. The lower profit is due to RM8m one off gain in 1HFY17 related to sale of land and building. Excluding this, the earnings decline was about 9%yoy.

Maintain NEUTRAL with higher TP of RM17.63. The increase in TP is due to higher Target Price to Book (PB) of 1.2x (from 1.1x) from positive factors mentioned above. Note that the 1.2x PB is the long term average PB for PPB. We maintain our FY18/FY19 earnings estimates of RM912m/RM1.03b. The positive newsflow surrounding potential Wilmar’s China operations IPO will keep PPB share price supported.

Source: MIDF Research - 5 Sept 2018