PPB Group - Sustained pace of earnings recovery

By Kenanga Research
28th Feb 2013


OUTPERFORM ↔
Price: RM12.22
Target Price: RM15.00 ↑



Period: 4Q12/ 9M12

Actual vs. Expectations:

• PPB’s FY12 core net income of RM842m beat both the consensus and our estimates. It made up 118% of the consensus forecast of RM713m and 113% of our forecast of RM748m. 
• We believe FY12 earnings was ahead of the consensus due to the better than expected earnings from Wilmar (which we had accounted for previously during Wilmar’s earnings release). 
• On the other hand, the results were ahead of ours due to the better than expected margin at PPB’s Grains Trading, Flour and Feed Milling (GFF) division in 4Q12. 
• The GFF division’s PBT margin surged to 12.1% in 4Q12 and was remarkably better than the 9M12 PBT margin of 5.7%. This could be caused by a lower input cost from a cheaper wheat price in 4Q12. 

Dividends:

• A final single tier dividend of 13.0 sen was announced. This was above both the consensus and our expectations, mainly due to the better than expected earnings. 

Key Results Highlights:

• YoY, the FY12 net profit declined 14% YoY to RM842m in line with the lower contribution from Wilmar in 1H12 due to losses at Wilmar’s Oilseeds and Grains (OAG) division. That said, Wilmar’s OAG division had recovered strongly to register a 2H12 PBT of USD106m against a 1H12 Loss Before Tax of USD92m. 
• QoQ, the 4Q12 net profit jumped 23% to RM306m due to margin improvement in PPB’s GFF division and the sustained profitability at Wilmar’s OAG division. The GFF division’s PBT margin surged to 12.1% in 4Q12 (from 1.7% in 3Q12).

Outlook:

• The worst should be over for PPB due to the sustained earnings recovery at Wilmar and the improved margin in PPB’s GFF division. 

Change to Forecasts:

• Increase FY13E earnings by 4% after assuming better PBT margin in PPB GFF division. 

Rating:

• Maintain OUTPERFORM 

Valuation:

• Upgraded our Target Price to RM15.00 based on unchanged Fwd. PER of 20.9x to the higher FY13E EPS of 71.8 sen (previously 68.8 sen). 

Risks:

• Lower than expected earnings contribution from Wilmar and poorer margin at PPB’s GFF division.

[Source]