KEY INVESTMENT HIGHLIGHTS

• Higher contribution from Wilmar lifted 4QFY19 normalised earnings to RM347.9m (+62.7%yoy)

• This lead up to +8.5%yoy expansion in FY19 normalised earnings to RM1,150.5m.

• Core businesses suffered setback with the exception of the grains and agribusiness

• FY19 dividend amounted to 31sen which translates into dividend yield of 1.7%

• Maintain NEUTRAL with a revised TP of RM18.60

Higher contribution from Wilmar. PPB Group Bhd (PPB) 4QFY19 normalised earnings came in at RM347.9m, an increase of +62.7%yoy. The improvement in earnings mainly came from stronger contribution from Wilmar.

Above expectations. Cumulatively, FY19 normalised earnings improved by +8.5%yoy to RM1,150.5m. This was mainly attributable to higher contribution from Wilmar at RM960m (vs 2018: RM837m) and higher profits from the grains and agribusiness segment (+16.7%yoy). All in, the group’s FY19 financial performance came in better than ours and consensus expectations, accounting for 112.1% and 109.4% respectively.

Dividend. In 4QFY19, the group announced final dividend of 23sen (4QFY18: 20sen). This brings full year FY19 dividend to 31sen from FY18 dividend of 28sen. This is in-tandem with the improvement in the group’s earnings.

Impact to earnings. We are assuming higher contribution primarily from Wilmar. As a result, FY20 and FY21 earnings estimates have been revised upwards to RM1,259.0m and RM1,350.2m respectively.

Target Price. We are rolling forward our valuation based year to FY21 and derive a new target price of RM18.60 (previously RM17.87). This is premised on PBV of 1.1x which is the share’s two year historical average.

Maintain NEUTRAL. The group’s suffered a setback across almost all of its core businesses with the exception of the grains and agribusiness. Fortunately, the group’s earnings were lifted by the contribution from its associate, Wilmar. Nonetheless, we could expect temporary weakness in Wilmar’s contribution in light of the Covid-19 outbreak which could adversely impact the soybean business. On another note, dividend is expected to remain unappealing, bearing dividend yield of less than two percent. All factors considered, we are maintaining our NEUTRAL recommendation at this juncture.

Source: MIDF Research - 28 Feb 2020