KUALA LUMPUR: Affin Hwang Capital research has initiated coverage on PPB Group Bhd
with a hold rating and a target price of RM19.50.
"We believe PPB’s strong financial position and prudent debt management will help the group to continue to expand and grow its core businesses locally and regionally," the research house said in a note.
For 2019-21E, Affin Hwang expects PPB's core net profit to increase 2% to 8% year-on-year to RM1.16bil to RM1.3bil on the back of improving earnings from its core divisions.
These core divisions include grains & agribusiness, film exhibition & distribution, environmental engineering & utilities as well as its associate Wilmar.
According to Affin Hwang, PPB's bottomline is highly dependent on its 18.5% stake in Wilmar International, which contributes to 65% to 75% of its pre-tax profit.
The group is expected to benefit from rising disposable incomes in Malaysia, which could potentially lead to growth in food consumption and an increase in leisure spending, which should help to increase revenue contribution to PPB's core businesses.
Affin Hwang believes PPB is a well-established and diversified conglomerate in Malaysia.
"In our view, the typical strong attributes of a consumer staple stock, stable but decent EPS growth, are found in PPB, which should continue to benefit from favourable demographics.
"In our view, PPB is a well-run company, with a good profit track record and direct exposure to one of the leading global agricultural business through its 18.5% stake in Wilmar," said Affin Hwang.