Investment Highlights

• We maintain BUY on PPB Group with a fair value of RM21.85/share, based on an unchanged FY22F PE of 18.0x and a 3.0% premium for a four-star ESG rating.

• PPB held a virtual briefing yesterday. Here are the key highlights.

• The grains and agribusiness division is expected to face challenging operating conditions in FY22F. The unit may be increasing the selling prices of its flour products gradually in FY22F to mitigate the higher costs of wheat.

• The division sources its wheat mainly from the USA, Canada and Australia. Wheat accounts for 85% to 90% of the cost of production for flour. So far in FY22F, the group has increased the selling price of its bulk flour products in Malaysia by 10%.

• In Malaysia, about 8% of the sales volume of flour products comprises general purpose flour (GP). The selling price of GP flour in Malaysia is fixed at RM1.35/kg. We forecast a small pre-tax profit of RM38.7mil for the grains and agribusiness division in FY22F compared to a pre-tax loss of RM21.3mil in FY21 (FY20 pre-tax profit: RM161.8mil).

• The outlook of the film exhibition and distribution division is envisaged to improve in FY22F as visitor patronage increases and SOPs are relaxed. Cinemas are now allowed to operate at 80% to 90% of seating capacity vs. 50% previously.

• In addition, a string of blockbuster movies in FY22F are anticipated to attract cinemagoers. Film production companies are expected to release five DC Universe movies and five Marvel Cinematic Universe movies in FY22F.

• The film exhibition and distribution division is also expected to open cinemas at four locations in FY22F. These include the opening of 12 screens in Bukit Bintang City Centre and eight screens in Sunway Iskandar, Johor. We forecast pre-tax profit of the division to be RM52.4mil in FY22F in contrast to a pre-tax loss of RM105.3mil in FY21 (FY20 pre-tax loss: RM122.5mil).

Source: AmInvest Research - 4 Mar 2022