INVESTMENT HIGHLIGHTS

• 4QFY18 normalised earnings impacted by lower contribution from Wilmar as well as PPB’s consumer product segment

• Full year FY18 normalised earnings reduced by -7.9%yoy to RM1,060.3m, in-line with our expectation

• No significant rerating catalyst at this juncture

• Potential listing of Wilmar’s China operation would continue to pique investor’s interest in PPB

• Maintain NEUTRAL with a revised TP of RM17.48

Lower contribution from Wilmar. PPB Group Bhd’s (PPB) 4QFY18 normalised earnings came in at RM213.8m, a decline of -44.1%yoy. This was mainly attributable to lower contribution from Wilmar International Limited (Wilmar) and the group’s consumer products segment.

Slowdown in FY18 financial performance expected. The decline in 4QFY18 normalised earnings led to weaker full year FY18 normalised earnings of RM1,060.3m (-7.9%yoy). Apart from the decline in contribution from Wilmar (-10.9%yoy), the grains and agribusiness and the consumer products segments all underperformed (refer to Table 1). All in, the group’s FY18 normalised earnings came in within ours but above consensus expectations, accounting for 105% and 108% of full year FY18 earnings respectively.

Impact on earnings estimates. No change in our earnings estimates at this juncture.

Target Price. We roll forward our valuation base year to FY20 and derive a revised target price of RM17.48 using Price-to-Book valuation. We are using 1.2x book value. This is the group’s two year on its two year historical average Price-to-book multiple.

Maintain NEUTRAL. Outlook for the grains and agribusiness segment remain challenging due to the volatile commodity market. Meanwhile, the consumer product segment’s well-being will be supported by a widening product range and entry into new markets. On a separate note, Wilmar’s profitability might be negatively impacted by African swine fever for its soybean segment while the sugar segment’s performance should remain unexciting due to the on-going depressed sugar prices. Nevertheless, the potential listing of Wilmar’s operation in China could retain investor’s interest in the stock. All factors considered, we are maintaining our NEUTRAL recommendation at this juncture.

Source: MIDF Research - 1 Mar 2019