KINDLY REFER TO THE LAST PAGE OF THIS PUBLICATION FOR IMPORTANT DISCLOSURES 22 April 2015 | Initiate Coverage PPB Group Bhd Initiate NEUTRAL A giant in the consumer staple space Target Price (TP): RM15.30 INVESTMENT HIGHLIGHTS • A Syariah-compliant ‘consumer products’ company and a constituent of FTSE Bursa Malaysia 30 • Wide range of business segments with strategic fit to obtain synergistic benefits • Sizeable exposure to the agribusiness through 18.3% stake in Wilmar, Asia’s leading agribusiness group • We are initiating coverage on PPB with a NEUTRAL recommendation, attaching a fair value of RM15.30 based on sum-of-parts valuation methodology One of the leading ‘consumer products’ company under FBM30. PPB Group Bhd (PPB) has an array of core businesses under ‘consumer products’ category. On the local bourse, it is listed as one of the 30 constituent companies of the FBMKLCI. Among PPB’s key business segments are: i) Flour and feed milling, and grains trading; ii) Marketing, distribution and manufacturing of consumer products; iii) Film exhibition and distribution; iv) Environmental engineering, waste management and utilities; v) Property investment and development; and vi) Chemicals livestock, investments and other operations. Synergistic business structure. PPB’s integrated business model revolves mainly around the consumer product segments. This strategy enables the company’s core business segments to complement each other, thus, creating synergistic benefits. Among the benefits of having such structure are economies of scale and marketing and distribution advantages. However, any hiccup in one of segments might affect the wellbeing of other segments and the group as a whole. Sizeable exposure to Wilmar. Besides the six core businesses, PPB also involved in agribusiness via its associate, Wilmar International Limited (Wilmar). The exposure to Wilmar further strengthens their presence in the food and agribusiness. However, its shareholding in Wilmar would also heighten PPB exposure to the volatilities in commodity price movements as well as foreign exchange rate, in particular the US Dollar. On average, contribution from PPB made up more than 70% to PPB’s pretax profit (PBT). Initiate with NEUTRAL recommendation. We are initiating coverage of PPB with a Neutral recommendation. We value PPB with a target price of RM15.30 per share based on sum-of-part valuation methodology. Our target price translates into an implied FY16 forward PER of 16.5x based on FY16 forecasted EPS of 92.7sen. RETURN STATS Price (20 April 2015) RM15.80 Target Price RM15.30 Expected Share Price Return -3.16% Expected Dividend Yield +1.90% Expected Total Return -1.26% STOCK INFO KLCI 1,862.80 Bursa / Bloomberg 4065 / PEP MK Board / Sector Main/ Consumer Products Syariah Compliant Yes Issued shares (mil) 1,185.50 Par Value (RM) 2.00 Market cap. (RM’m) 18,944.3 Price over NA (x) 1.13 52-wk price Range RM13.42 – RM16.52 3-mth Avg Daily Vol (m) 0.35 3-mth Avg Daily Value RM5.24m Major Shareholders (%) Kuok Brothers S/B 50.81 EPF 7.64 Nai Seng S/B 4.16 KWAP 3.00
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PPB Group Bhd - I3investorDevelopment Sdn Bhd (SM) in 2013. The latter has acquired about 12.5 acres of land in Puteri Harbour, Nusajaya, Iskandar Malaysia for the proposed development
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KINDLY REFER TO THE LAST PAGE OF THIS PUBLICATION FOR IMPORTANT DISCLOSURES
22 April 2015 | Initiate Coverage
PPB Group Bhd Initiate NEUTRAL
A giant in the consumer staple space Target Price (TP): RM15.30 INVESTMENT HIGHLIGHTS
• A Syariah-compliant ‘consumer products’ company and a
constituent of FTSE Bursa Malaysia 30
• Wide range of business segments with strategic fit to obtain
synergistic benefits
• Sizeable exposure to the agribusiness through 18.3% stake
in Wilmar, Asia’s leading agribusiness group
• We are initiating coverage on PPB with a NEUTRAL
recommendation, attaching a fair value of RM15.30 based
on sum-of-parts valuation methodology
One of the leading ‘consumer products’ company under FBM30.
PPB Group Bhd (PPB) has an array of core businesses under ‘consumer
products’ category. On the local bourse, it is listed as one of the 30
constituent companies of the FBMKLCI. Among PPB’s key business
segments are: i) Flour and feed milling, and grains trading; ii)
Marketing, distribution and manufacturing of consumer products; iii)
Film exhibition and distribution; iv) Environmental engineering, waste
management and utilities; v) Property investment and development; and
vi) Chemicals livestock, investments and other operations.
Synergistic business structure. PPB’s integrated business model
revolves mainly around the consumer product segments. This strategy
enables the company’s core business segments to complement each
other, thus, creating synergistic benefits. Among the benefits of having
such structure are economies of scale and marketing and distribution
advantages. However, any hiccup in one of segments might affect the
wellbeing of other segments and the group as a whole.
Sizeable exposure to Wilmar. Besides the six core businesses, PPB
also involved in agribusiness via its associate, Wilmar International
Limited (Wilmar). The exposure to Wilmar further strengthens their
presence in the food and agribusiness. However, its shareholding in
Wilmar would also heighten PPB exposure to the volatilities in
commodity price movements as well as foreign exchange rate, in
particular the US Dollar. On average, contribution from PPB made up
more than 70% to PPB’s pretax profit (PBT).
Initiate with NEUTRAL recommendation. We are initiating
coverage of PPB with a Neutral recommendation. We value PPB with a
target price of RM15.30 per share based on sum-of-part valuation
methodology. Our target price translates into an implied FY16 forward
PER of 16.5x based on FY16 forecasted EPS of 92.7sen.
RETURN STATS
Price (20 April 2015) RM15.80
Target Price RM15.30
Expected Share Price
Return -3.16%
Expected Dividend Yield +1.90%
Expected Total
Return -1.26%
STOCK INFO
KLCI 1,862.80
Bursa / Bloomberg 4065 / PEP MK
Board / Sector
Main/
Consumer
Products
Syariah Compliant Yes
Issued shares (mil) 1,185.50
Par Value (RM) 2.00
Market cap. (RM’m) 18,944.3
Price over NA (x) 1.13
52-wk price Range RM13.42 –
RM16.52
3-mth Avg Daily Vol (m) 0.35
3-mth Avg Daily Value RM5.24m
Major Shareholders (%)
Kuok Brothers S/B 50.81
EPF 7.64
Nai Seng S/B 4.16
KWAP 3.00
MIDF EQUITY BEAT Wednesday, 22 April 2015
2
COMPANY BACKGROUND
One of the leading ‘consumer products’ company. As one of the top ‘consumer products’ companies in
Malaysia, PPB Group Berhad (PPB) manufactures and distributes wide range of fast-moving consumer goods (FMCG)
products under its own brand names as well as other local and international brands. Being a conglomerate, PPB is
also actively involved in grains trading, flour and animal feed milling together with a host of other downstream
activities such as livestock farming, food processing, bakery and marketing and distribution of consumer products.
Besides food manufacturing, the company owns Golden Screen Cinemas Sdn Bhd which involves in the entertainment
business. It has also successfully diversified into environmental engineering and waste management, contract
manufacturing, chemicals manufacturing, property development and management as well as packaging operations.
Main Business Segments
i. Flour & Feed Milling, & Grains Trading
PPB is involved in the flour milling business through its 80%-owned subsidiary FFM Bhd. FFM is currently the largest
flour miller in Malaysia which owned five flour mills with a combined milling capacity of 2,550-mt per day. Apart from
this, FFM also has milling factories across South East Asia, some of which is through its business associates. On
aggregate, FFM has access to milling capacity of more than 20,150-mt per day.
Table 1: Group milling capacities
Subsidiary / associate Milling capacity (mt per day) Location
KINDLY REFER TO THE LAST PAGE OF THIS PUBLICATION FOR IMPORTANT DISCLOSURES
APPENDIX
i) PPB ORGANISATION STRUCTURE
Source: Company
MIDF EQUITY BEAT Wednesday, 22 April 2015
12
ii) Wilmar’s global presence
Source: Company
KINDLY REFER TO THE LAST PAGE OF THIS PUBLICATION FOR IMPORTANT DISCLOSURES
MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - X).
(Bank Pelaburan)
(A Participating Organisation of Bursa Malaysia Securities Berhad)
DISCLOSURES AND DISCLAIMER
This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law.
Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT
BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or
reliability of the information contained therein and it should not be relied upon as such.
This report is not, and should not be construed as, an offer to buy or sell any securities or other financial
instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts
will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD.
The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in
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MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS
STOCK RECOMMENDATIONS
BUY Total return is expected to be >15% over the next 12 months.
TRADING BUY Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has
been assigned due to positive newsflow.
NEUTRAL Total return is expected to be between -15% and +15% over the next 12 months.
SELL Negative total return is expected, by -15% or more, over the next 12 months.
TRADING SELL Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has
been assigned due to negative newsflow.
SECTOR RECOMMENDATIONS
POSITIVE The sector is expected to outperform the overall market over the next 12 months.
NEUTRAL The sector is to perform in line with the overall market over the next 12 months.
NEGATIVE The sector is expected to underperform the overall market over the next 12 months.