INVESTMENT HIGHLIGHTS

• 1QFY19 normalised earnings came in higher at RM243.3m (+22.1%yoy) in-line with ours and consensus expectations

• Contribution from Wilmar grew by +32.2%yoy to RM193m

• Internally, the grain and agribusiness and the cinema business segments also recorded higher income

• Maintain NEUTRAL with a revised TP of RM17.48

Higher contribution from Wilmar. PPB Group Bhd (PPB) 1QFY19 normalised earnings came in at RM243.3m, an increase of +22.1%yoy. This was mainly attributable to higher contribution from Wilmar and better performance from the ‘Grain and agribusiness’ and ‘Film exhibition and distribution’ segments. All in, the group's 1QFY19 financial performance came in within ours and consensus expectations, accounting for 23.9% and 20.0% of full year FY19 earnings estimates respectively.

Mix performance from its core businesses. During the quarter-inreview, both the ‘Grains and agribusiness’ and the ‘Film exhibition and distribution’ segments profit grew by +79.2%yoy and +22.0%yoy. Note that both segments contributed 38.2% of total PBT. However, the positivity was partially subdued by lower contribution from the ‘consumer product’ (-52.1%yoy), ‘environmental engineering & utilities’ (-11.6%yoy) and ‘property’ (-39.2%yoy) segments (refer to Table 1).

Target Price. We are maintaining our target price of RM17.48 based on price-to-book valuation. We are attaching target PBV of 1.1x which is the share’s two year historical average. This translate into an implied target PER of 24.1

Maintain NEUTRAL. The core businesses deliver a mix set of result. The improvement in grain and agribusiness and cinemas business divisions performs was partially negated by the other non-performing segments. Fortunately, contribution from Wilmar lifted the group’s bottomline. However, we expect challenges from the sugar milling and palm plantation segments to partially dent Wilmar’s future earnings growth. On another note, we view that PBB’s current valuation of 1.2x PBV appears stretch at this juncture as it is trading above the two and five years historical average of 1.1x. Meanwhile, dividend yield of approximately one percent appears unattractive. All factors considered, we are maintaining our NEUTRAL recommendation at this juncture.

Source: MIDF Research - 30 May 2019