KEY INVESTMENT HIGHLIGHTS

• 1QFY20 normalised earnings decline -28.2%yoy to RM205.7m, lower than ours and consensus expectation

• Core businesses suffered setback, with the film exhibition and distribution business impacted the most

• Contribution from Wilmar also came in lower by -14.5%yoy to RM165m from RM193m as at 1QFY19

• The core businesses expected to recover gradually with the exception of the film exhibition and distribution business

• Maintain NEUTRAL with a revised TP of RM17.95

Double digit decline in earnings. PPB Group Bhd (PPB) 1QFY20 normalised earnings came in at RM205.7m, a decrease of -15.5%yoy. Lower contribution was recorded across all its core businesses as well as from its associates, Wilmar. All in, the group’s 1QFY20 financial performance came in below ours and consensus expectations, accounting for 16.3% and 18.2% of full year estimates respectively.

Core business comes under siege. All of PPB’s core businesses have been adversely impacted by the advent of the Covid19 pandemic. Nonetheless, the film exhibition and distribution business has been impacted the most. In the foreseeable term, we expect the outlook for the film exhibition and distribution business to remain very challenging which will place it in a loss-making position. Note that historically this segment is the group’s second largest contributor after the grain and agribusiness segment.

Impact to earnings. We are revising downwards the contribution across all the business segments while we expect the film exhibition and distribution business is expected to remain loss-making. In addition, we also factor in lower contribution from Wilmar. As a result, FY20/21/22 earnings estimates have been revised lower to RM874.1m/RM1,000.8m/RM1,047.2m respectively.

Target Price. Post our earnings adjustment, we are lowering our target price to RM17.95 (previously RM18.60). 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 all of its core businesses which is brought about by the Covid19 pandemic. In particular, the film exhibition and distribution business is impacted the most. While we expect the majority of the core businesses would gradually return to normalcy, we opine that the film exhibition and distribution to remain loss-making in the foreseeable term. Nonetheless, we expect the contribution from its associate, Wilmar, will provide support to the group’s weakened earnings capability. All factors considered, we are maintaining our NEUTRAL recommendation at this juncture.

Source: MIDF Research - 1 Jun 2020