KEY INVESTMENT HIGHLIGHTS

• 2QFY20 normalised earnings lifted by +70.3%yoy to RM274.8m mainly due to higher contribution from Wilmar

• Cumulative 1HFY20 normalised earnings rose to RM480.5m (+18.9%yoy), in-line with ours and consensus expectations

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

• Announced first interim dividend of 8sen per share

• Maintain NEUTRAL with a unchanged TP of RM17.94

Double digit decline in earnings. PPB Group Bhd (PPB) 2QFY20 normalised earnings came in at RM274.8m, an improvement of +70.3%yoy. This was mainly due to higher contribution from Wilmar amounting to RM282m (+141.0%Yoy). However, the 2QFY20 financial performance was negatively impacted by the loss-making film exhibition and distribution and property division.

Within expectation. Cumulatively, 1HFY20 normalised earnings expanded by +18.9%yoy to RM480.5m as contribution from Wilmar surged +44.2%yoy to RM447m. All in, the group’s 1HFY20 financial performance came in within ours and consensus expectations, accounting for 55.0% and 49.4% of full year FY20 earnings estimates respectively.

Impact to earnings. No change to our earnings estimates at this juncture.

Dividends. The group announced first interim dividend of 8sen for 2QFY20. This is in-tandem with 2QFY19’s quantum.

Target Price. We are maintaining our target price to RM17.94. This is premised on pegging FY21 BV of RM16.3 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 - 28 Aug 2020