PETALING JAYA: PPB Group Bhd has been been upgraded to an “outperform” from “market perform” by Kenanga Research on improving prospects.
The brokerage also raised its target price for the diversified conglomerate to RM20.70 from RM18.90 based on joint sum-of-parts between PPB and its 18.5%-owned Wilmar International Ltd.
Kenanga Research noted it had raised its earnings forecast for PPB for the financial years ending Dec 31,2021 to 2022 by 11% and 6% respectively on higher contribution from Wilmar. It had also raised Wilmar’s estimated FY21-22 realised crude palm oil (CPO) prices to RM2,740 per tonne.
Wilmar’ core net profit of S$1.4bil, up 20% year-on-year (y-o-y), for FY20 exceeded Kenanga Research’s estimate at 119%, but it was within consensus estimate at 97%, due to higher CPO price and better crush margins. Fresh fruit bunch output for FY20 at 4.03 million tonnes, up 3% y-o-y, was within the brokerage’s forecast at 101%.
Kenanga Research pointed out Wilmars’s total dividend per share of S$19.50 was above its expectation of S$13 per share.
“Following PPB’s 7% share price decline from January’s high of RM19.50, we think the name is now attractive at FY21 price-earning ratio of 19.2 times, while offering exposure to an economy re-opening angle (which we believe will grow in prominence as the Covid-19 vaccine rollout draws near), ” it said, noting the valuation premium for YKA, a 99.99%-owned unit of Wilmar, was also under-appreciated.
While soybean crush margins would remain relatively stable in the first half of FY21, it would be a seasonally weaker period for Wilmar, as its sugar division would likely register losses entering a low crushing season, especially in the second quarter of the year.