Investment Highlights

• We maintain BUY on PPB Group with a lower fair value of RM16.65/share vs. RM18.80/share previously. We have reduced PPB’s net earnings by 15% for FY24E and 11.5% for FY25F to account for weaker results from Wilmar International.

• Although PPB’s results missed expectations, we are keeping our recommendation as Wilmar’s profitability is expected to improve in FY25F on the back of higher soybean crushing margins in China.

• Our revised fair value for PPB is based on FY25F PE of 15x, which is a tad higher than PPB’s 2-year average of 14x. We attach a neutral 3-star ESG rating to the group.

• On an annualised basis, PPB’s 1HFY24 net profit of RM646.1mil was 15% below our forecast and 12% short of consensus. PPB’s results disappointed as its associate, Wilmar International, was affected by poor results from associates and overseas joint ventures.

• PPB’s 1HFY24 net profit rose by 11.3% YoY to RM646.1mil due to an increase in the share of earnings in associates (mainly Wilmar International) and stronger contribution from grains and agribusiness.

• Pre-tax profit (excluding disposal gain of RM12.6mil) of PPB’s grains and agribusiness division climbed 18% YoY to RM149.5mil in 1HFY24 as the cost of wheat dropped. Hence, pre-tax profit margin expanded to 26.9% in 1HFY24 from 21.6% in 1HFY23.

• On a quarterly basis, the grains and agribusiness unit registered a smaller core pre-tax profit of RM63.3mil in 2QFY24 vs. RM86.2mil in 1QFY24. This was due to a drop in hedging gains from RM31.1mil in 1QFY24 to RM20.4mil in 2QFY24. Pre-tax profit margin shrank to 25.3% in 2QFY24 from 28.6% in 1QFY24.

• Pre-tax of the film exhibition and distribution division swung into a loss of RM4.4mil in 1HFY24 from a profit of RM14mil in 1HFY23 as cinema patronage was affected by the lack of blockbuster movies. We believe that depreciation expense also rose in 1HFY24 due to the opening of luxury cinemas at TRX.

• Comparing 2QFY24 against 1QFY24, however, the film exhibition and distribution division swung into a pre-tax profit of RM13.7mil from a loss of RM18.1mil. Going forward, we believe that cinema patronage would improve as “Deadpool and Wolverine” and “Twisters” were released in 3QFY24.

Source: AmInvest Research - 30 Aug 2024