PETALING JAYA: A strong finish in terms of earnings is expected for diversified group PPB Group Bhd after the first nine months of its financial year ended Dec 31, 2022 (FY22) performance already exceeded its previous FY07 record profit.
Kenanga Research in a note to clients said this was largely boosted by contribution from oil palm company Wilmar International Ltd (WIL).
“Earnings from PPB’s own operations only rebounded in the second quarter of its FY22 (2Q22), with the recovery momentum gaining pace in 3Q22.
“Although 4Q22’s contribution from WIL should ease on softening crude palm oil (CPO) prices, all in all, a strong finish to FY22 can be expected,” the research house said.
In its note, it said non-plantation profits still faced headwinds but were recovering.
“Demand for flour and feed meal is healthy but raising selling prices to offset higher input costs will require time so margins are expected to stay subdued into FY23 though recovering.
“Wheat prices have softened by over 25% since May’s peak price. Likewise, US dollar/ringgit has also eased allowing for some margin leeway. Lastly, upward selling price adjustment can also be expected in FY23 and beyond,” said Kenanga.
It also noted that consumer product margins had inched up since 2Q22.
Ready-to-eat products are subjected to less rigorous price monitoring and this unit also distributes non-essential items like toiletries, cleaning products and some supplements, it noted.
“We expect margins to continue recovering over the coming 12 to 24 months.”
Meanwhile, after incurring over RM100mil in annual losses for the past two years, PPB’s Golden Screen Cinemas (GSC) started recovering after operating hours were normalised in April 2022.
“GSC also took over 18 cinemas from MBO in September 2021 when the latter sought voluntary liquidation.
“With 30% to 35% market share in screen or seating capacity and a stronger presence in affluent areas, GSC is looking to capture about half the box office takings. In any case, FY22 should revert to over RM500mil in revenue with profits to boot,” it said.
Kenanga said earnings are expected to improve further as GSC fine-tunes its cinema locations and offers the premium Aurum Theatre.
On softer CPO prices, it said this will temper WIL’s forward contributions even if WIL looks set to end FY22 with record earnings.
“FY23-FY24 earnings should ease as palm oil prices consolidate lower at RM3,500-RM4,000 per tonne in FY23 compared to around RM4,500 in FY22.”
Kenanga has increased its forecast for PPB’s core earnings per share by 4% for both FY22 and FY23, to 136 sen and 122.8 sen, respectively, largely on margin recovery.
PPB is involved in many businesses, which include agriculture, waste management, food production, film distribution as well as property investment and development.