PPB Group Indonesian asset sale a positive

PETALING JAYA: The proposed sale of PPB Group Bhd’s controlling interest in its Indonesian flour mill, PT Pundi Kencana (PK), to 19%-associate Wilmar International Ltd will allow Wilmar to consolidate its other wheat and rice flour milling businesses in Indonesia, says Kenanga Research.

The deal will see FFM Bhd, which is 80% owned by PPB, selling its 51% stake in PK to Wilmar for RM87.5mil, thus valuing PK at RM172mil.

This translates to around a 14 times price-to-earnings ratio and a price-to-book value of 1.1 times financial year 2022 (FY22), said the research firm.

“As such, the divestment value is not large with a ‘neutral’ impact on PPB.

“A small disposal gain of RM25mil will also be recognised by PPB, but moving forward, its effective economic interest in PK will fall from 42.7% to 9.6%.

“Essentially, the disposal will allow Wilmar to better operate and consolidate its other wheat and rice flour milling businesses in Indonesia with PK under its control,” Kenanga Research said in a report yesterday.

The research firm noted PK ended FY22 with net assets of RM162mil and a net profit of RM12mil, while an independent Indonesian valuer attached an indicative value of RM135mil for PK.

Meanwhile, it said that Wilmar’s core net profit of US$577mil (RM2.66bil) in the first half of FY23 (1H23) came within expectations.

“We consider this within 1% of our full-year’s expectation, as we expect a slightly stronger 2H23 coming from better margins in the food and plantation segments.

“This is also in line with the group’s guidance of a better second half of 2023 barring unforeseen circumstances,” said Kenanga Research.

The research firm has an “outperform” call on PPB with a RM19.30 target price.

It said key investment merits for PPB include its strong market position in consumer essentials such as flour, feed and ready-to-eat meals, as well as in the mass consumer entertainment segment.

The group also has integrated exposure in oil palm and sugar, from upstream production to selling branded consumer cooking oils and sugar products in China, South-East Asia and India via Wilmar.

Its balance sheet is strong, while earnings should start recovering in FY24, added Kenanga Research.

The research firm added the risks to its call include weather impact on edible oil supply, unfavourable commodity prices fluctuations and production cost inflation.