INVESTMENT HIGHLIGHTS

• 2QFY19 normalised earnings came in lower at RM160.9m (-43.5%yoy) in view of lower contribution from its ‘grain and agribusiness’ segment and Wilmar

• Cumulative 1HFY19 financial performance failed to keep pace with ours and consensus expectations

• Only the ‘film exhibition and distribution’ and ‘property’ segments outperform

• Maintain NEUTRAL with a revised TP of RM17.43

Lower contribution from Wilmar. PPB Group Bhd (PPB) 2QFY19 normalised earnings came in at RM160.9m, a decrease of -43.5%yoy. This was mainly attributable to lower contribution from Wilmar and weaker performance from the ‘grain and agribusiness’ segment. Note that Wilmar’s profitability was affected by the lower soybean crush margins amid an African swine fever outbreak.

Failed to keep pace with our expectation. The weaker 2QFY19 financial performance led to 1HFY19 financial performance of RM404.2m (-16.5%yoy). All in, the group's 1QFY19 financial performance came in below ours and consensus expectations, accounting for 40.2% and 34.5% of full year FY19 earnings estimates respectively.

Mix performance from its core businesses. During 1HFY19, only the ‘film exhibition and distribution’ and ‘property’ showed improvement in PBT at +33.7%yoy and +6.3%yoy respectively. However, the group’s biggest core segment i.e. ‘grains and agribusiness’ recorded a -14.0%yoy decline in PBT. Meanwhile, the group’s other core business segments also registered weaker PBT (refer to Table 1).

Impact. We are reducing FY19 and FY20 earnings by -8.8% and -0.5% respectively. This is derive by assuming lower contribution from the ‘grain and agribusiness’ segment and it’s associate i.e. Wilmar International.

Target Price. Post our earnings adjustment, we are revising our target price to RM17.43 (previously 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 24.2x.

Source: MIDF Research - 3 Sept 2019