9MFY20 CNP of RM929.8m (+16% YoY) is deemed to be within our expectation at 82% but above consensus at 92%. Moving forward, we believe the group should remain resilient, as Wilmar’s earnings remain anchored by relatively stable soybean crush margins on recovering swine herds and HoReCa demand. Post-results, we maintain MARKET PERFORM with unchanged SoP-driven TP of RM18.90.

Within our expectation. 9MFY20 core net profit (CNP) of RM929.8m is deemed within our expectation at 82% but above consensus at 92%, likely due to stronger-than-expected contribution from Wilmar. Based on the past three years’ trend, 9M typically contributes c.80% of the full- year earnings. No dividend was declared, as expected.

Results’ highlights. YoY, 9MFY20 CNP rose 16%, mainly supported by: (i) stronger contribution from Wilmar (31%), (ii) higher PBT from Grains and Agribusiness which rose 66% on the force of cheaper raw materials which outshined lower sales volume for flour and feed, coupled with (iii) better Consumer products’ contribution which nearly grew 10x YoY, likely boosted by stronger demand for its bakery products during lockdown. However, its Film segment swung into pre- tax losses of RM89.2m (versus RM55.3m PBT in 9MFY19) as business operations were heavily impacted by the closure of cinemas during MCO, as well as the deferment of major movie releases.

QoQ, 3QFY20 revenue grew by 9%, as all the segments saw improved top-line performances except for Consumer products’ segment, which was dulled by poorer sales performance (-12%) likely due to the normalisation of bread demand post-lockdown. Consequently, 3QFY20 CNP came in stronger by 42%, mainly boosted by stronger Wilmar contribution (+45%).

Weathering through these uncertain times. The group’s earnings are likely to remain resilient moving forward, as Wilmar’s earnings are expected to continue being buoyed by the commencement of sugar crushing season in Australia (June to November), and relatively stable soybean crush margins on recovering swine herds and normalising HoReCa demand. Meanwhile, fairly sturdy demand in the Grains and Agribusiness segment’s flour milling business should help offset the weaker ASP in its livestock farming business. The film segment is likely to remain sluggish as long as the pandemic rages on, as profitability is expected to remain impacted by closure of cinemas and postponement of major movie titles.

Post-results, we made no changes to our earnings forecasts.

Maintain MARKET PERFORM with an unchanged TP of RM18.90. This is based on a joint Sum-of-Parts between PPB and Wilmar. We value Wilmar (ex-YKA) at a blended Sugar and Palm Plantation segments’ PER of 25.7x, reflecting large cap average; YKA at 26.4x PER, given higher valuations commanded on ChiNext (ChiNext Index Fwd. PER of c.44x); PPB at a blended Grains & Consumer products and Film segments’ PER of 23.6x PER and other segments at book value. The stock appears to be fairly valued at this juncture, as our TP implies FY21E PER of 21x (+0.5SD over its 3-year mean). Risks to our call include: (i) better/weaker-than-expected crush/refining margin, and (ii) better/worse commodity price trends

Source: Kenanga Research - 27 Nov 2020