KEY INVESTMENT HIGHLIGHTS

• Recovery in Wilmar’s 3QFY19 contribution lead to Higher 3QFY19 normalised earnings of RM401.6m (+10.8%yoy)

• However, cumulative 9MFY19 normalised earnings came in -5.3%yoy lower to RM800.8m

• In aggregate, the operating profit from PPB’s core businesses remain resilient (-0.1%yoy)

• Expect no surprises in annual dividend declaration, with yield expectancy of about one percent

• Maintain NEUTRAL with a revised TP of RM17.87

Higher contribution from Wilmar. PPB group (PPB) 3QFY19 normalised earnings came in at RM401.6m, an increase of +10.8%yoy. The improvement in earnings mainly came from stronger contribution from Wilmar as well as higher performance from the ‘grains and agribusiness’ and ‘environmental engineering and utilities’ segments.

Above expectations. Cumulatively, 9MFY19 normalised earnings declined by -5.3%yoy to RM800.8m. This was in view of lower contribution from Wilmar amounting to RM652m (-4.4%yoy), which was partially offset by higher profits from the grains and agribusiness segment (refer to Table 1). All in, the group’s 9MFY19 financial performance came in better than our expectations, making up 87.2% of full year FY19 earnings.

Impact to earnings. We are assuming higher contribution primarily from Wilmar. As a result, FY19E and FY20F earnings estimates have been revised upwards by +11.8% and 10.7% to RM1,026.5m and RM1,136.0m respectively.

Target Price. We are revising our target price of RM17.87 (previously RM17.43) based on price-to-book valuation. We are attaching target PBV of 1.1x which is the share’s two year historical average. This translates into an implied target of 22.0x.

Maintain NEUTRAL. Wilmar’s contribution to the group was depressed by the weaker performance from the oilseeds and grains business in view of the effects of the African Swine Fever. Fortunately, PPB’s grains and agribusiness segment’s outlook improve, mainly attributable to the higher flour prices. On another note, dividend is expected to remain unappealing, bearing dividend yield of about one percent only. All factors considered, we are maintaining our NEUTRAL recommendation at this juncture

Source: MIDF Research - 22 Nov 2019