• PPB’s 6M20 core net profit of RM481.1m (+18.6% yoy) came in above our expectations, due mainly to a higher-than-expected contribution from Wilmar.
• We raise our 2020-22E core EPS by 8-19% on higher earnings from Wilmar and grains & agribusiness.
• We expect better 2H20 earnings as the economy progressively re-opens and demand for consumer products improves. Our DCF-derived target price is raised to RM18.90 (from RM18.50); we maintain our HOLD rating on PPB.

6M20 Core Net Profit at RM481.1m – Above Our Expectations

PPB Group Berhad (PPB) reported a lower 6M20 revenue of RM2.02bn, down 12.5% yoy, mainly attributable to a decline in contribution across all its businesses - grains & agribusiness, consumer products, film exhibition & distribution, environmental engineering and property. However, the group’s 6M20 PBT increased by 28.2% yoy to RM591.1m, mainly due to higher profit contribution from grains & agribusiness (due to lower raw material costs), consumer products (improved performance at the bakery division) and other operations (due to higher profit contribution from Wilmar). Meanwhile, the film exhibition & distribution and property divisions were loss-making in 6M20 due to the Movement Control Order (MCO) that required the closure of cinemas and lower mall-related income. After adjusting for one-off items, PPB’s 6M20 core net profit increased by 18.6% yoy to RM481.1m, which came in above our expectation due mainly to the higher-than-expected contribution from Wilmar.

Stronger Qoq Due to Higher Profits From Wilmar

PPB’s 2Q20 revenue was lower by 10.7% qoq to RM953.3bn due to lower contribution across all segments except consumer products. The EBITDA margin weakened slightly by 0.5ppt to 6.4% mainly due to bigger losses at the film exhibition and distribution division. However, 2Q20 PBT surged 94.2% qoq to RM390.2m due to an increase in profit from Wilmar, grains & agribusiness, consumer products and environmental engineering. The group also benefited from the forex gain and fair value gain on derivatives during the quarter. Excluding one-off items, PPB’s core net profit increased by 33.6% qoq to RM275.1m in 2Q20.

Maintain HOLD Rating With New TP of RM18.90

Given the stronger-than-expected 6M20 results, we raise our 2020-22E core EPS by 8- 19% mainly to account for higher earnings contribution from Wilmar and grains & agribusiness. We expect earnings to improve in 2H20 as the economy progressively reopens and demand for consumer products improves. Our DCF-derived target price is raised to RM18.90 (WACC of 6.5%; from RM18.50) and we maintain our HOLD rating.

Key Risks

The upside/downside risks to our HOLD rating would be: 1) stronger/weaker economic growth leading to a higher/lower consumption of food products; 2) substantial declines/increases in raw material prices and labour costs; 3) a sustained rebound/plunge in edible oil prices; 4) stronger/weaker economic growth in key export markets increasing/curbing demand; and 5) changes in policies.

Source: Affin Hwang Research - 28 Aug 2020