Both PPB and Singapore-based Wilmar are controlled by Malaysia’s richest individual Robert Kuok, who has a net worth of US$16.5 billion (RM73 billion) according to Bloomberg. PPB is the largest shareholder in the plantations and agribusiness giant with an 18.8% stake.
In a note today, Kenanga said Wilmar recorded a weak first-half core net profit of US$606 million (RM2.68 billion), meeting only 39% of consensus FY2024 profit on lower revenue and margin. Wilmar contributes nearly 80% of PPB’s earnings.
As a consequence, the research house lowered its FY2024 core earnings per share (EPS) for PPB by 10%. However, it maintained PPB’s FY2025 earnings, acknowledging that the group’s fundamental outlook remains unchanged.
Kenanga noted Wilmar was already affected in Q1 FY2024 by weaker revenue from softer commodity prices and further dampened by poor sugar merchandising.
“Q2 FY2024 revenue slid further against our expectation on flattish commodity prices, which continued to offset growth in off-take volume,” it said.
It said weaker sugar prices in H1 FY2024 is expected to stay for the rest of the year and a stronger ringgit is expected to erode Wilmar’s H2 FY2024 contribution to PPB by 2%-3%.
Nevertheless, Kenanga expects a better H2 FY2024 for the group, due to strong consumer food segment growth, which rose 77% year-on-year (y-o-y) in the first half.
Second-half improvement
The improving demand for industrial feed, edible oils and grains with better margins is also likely to contribute to a possible second-half improvement for Wilmar. Palm oil earnings are also expected to pick up on higher seasonal fresh fruit bunch (FFB) output, it said.
It acknowledged that PPB’s earnings can be volatile due to associate Wilmar’s commodity (palm oil and sugar) exposures but the group has attractive agri-food businesses catering to the region’s growing middle-class consumers.
“Wilmar is strong in the Chinese and Indian edible oil and processed food segments while PPB has its own flour, feed and food businesses in Southeast Asia.
“Trading below both book value and market PER (price-to-earnings ratio), we believe PPB provides longer term upside amid some volatility in the nearer term,” it added.
For its first quarter ended March 31, 2024, net profit fell 11% to RM337.17 million from RM377.54 million a year ago while revenue dropped 15% to RM1.29 billion from RM1.52 billion a year earlier.
The drop in profit was attributed to lower contributions from Wilmar and soft sales from Golden Screen Cinemas (GSC) under its film exhibition and distribution segment.
Kuok, 100, controls PPB Group via his private vehicle Kuok Brothers Sdn Bhd, which has a 50.81% stake, according to its latest annual report. The next largest shareholder is EPF with 9.77%.
The company was founded by Kuok in 1968 as Perlis Plantations Bhd to cultivate and mill sugar cane in Perlis. The company was listed in 1972 and has since ventured into other industries including food production, waste management, film distribution, property investment and development.
PPB’s shares fell 22 sen or 1.5% to RM14.48 at 4.35pm today, valuing the group at RM20.6 billion.