KEY INVESTMENT HIGHLIGHTS

• 3QFY20 normalised earnings lifted by +6.9%yoy to RM429.2m mainly due to higher contribution from Wilmar

• Cumulative 9MFY20 normalised earnings rose to RM909.8m (+18.9%yoy), surpassing ours and consensus expectations

• Internally, the grain and agribusiness and consumer products are the only segments that outperformed

• The film exhibition and distribution and property divisions will continue to impact the group’s core earnings

• Maintain NEUTRAL with a revised TP of RM18.64

Higher contribution from Wilmar. PPB Group Bhd (PPB) 3QFY20 normalised earnings came in at RM429.2m, an improvement of +6.9%yoy. This was mainly due to higher contribution from Wilmar amounting to RM409m (+19.6%yoy). However, the 3QFY20 financial performance was negatively impacted by lower contribution from the core businesses, in particular the loss-making consumer products and film exhibition and distribution segments.

Exceed expectation. Cumulatively, 9MFY20 normalised earnings expanded by +13.6%yoy to RM909.8m as contribution from Wilmar surged +31.1%yoy to RM855m. All in, the group’s 9MFY20 financial performance came in above ours and consensus expectations, accounting for 103.2% and 90.0% of full year FY20 earnings estimates respectively. Impact to earnings. We are increasing the contribution from Wilmar while keeping the contribution from the group’s core business unchanged. As such, FY20-23 have been revised upwards to between RM1,311.2m and RM1,525.8m.

Target Price. Post our earnings adjustment, we are revising our target price to RM18.64 (previously RM17.98). This is premised on pegging FY21 BV of RM16.95 against 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 Covid-19 pandemic. In particular, the film exhibition and distribution and the property divisions are 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 and the property business to remain lossmaking in the foreseeable term. Nonetheless, we expect the contribution from its associate, Wilmar, will continue to provide support to the group’s weakened earnings capability. All factors considered, we are maintaining our NEUTRAL recommendation at this juncture.

Source: MIDF Research - 27 Nov 2020