PPB to see normalisation in crushing margins on low material prices

PETALING JAYA: PPB Group Bhd is expected to witness normalisation of the crushing margins within its grains and agribusiness segment, driven by the downtrend in raw material prices.

MIDF Research pointed towards the ongoing consolidation in wheat prices, noting that the commodity had declined to an average of US$363.8 per tonne in the second quarter of 2023 (2Q23).

This represented a substantial 26% year-on-year drop from the preceding year’s average price of US$492.4 per tonne, it said.

“This will result in grains and agribusiness crushing margins to normalise, aided by prudent procurement of feedstock as well a decline in the price of wheat,” the research outfit said.

Similarly, UOB Kay Hian (UOBKH) Research expected PPB’s grains and agribusiness sector to yield improved margins due to the decrease in raw material prices.

“Any downside supply risk may affect the performance for the rest of the year,” it noted.

However, the research firm anticipated a surge in earnings momentum for PPB in the forthcoming quarters.

With the exception of the property segment, which constitutes a minor share, UOBKH Research noted that gains from the remaining segments are forecast to escalate over the upcoming three quarters.

Within the film exhibition and distribution segment, UOBKH Research expected earnings to be propelled by strong movie titles and the anticipation of upcoming blockbusters.

“Film distribution is expected to perform better with few strong local titles in the pipeline,” it added.

UOBKH Research, however, acknowledged that the recent strikes involving actors and writers in Hollywood could potentially disrupt film-making process and lead to delays in the release of several blockbuster films.

Despite these challenges, the research firm is cautiously optimistic on the segment’s performance in 2023.

In 2Q23, PPB achieved a core net profit of RM151mil, leading to a core net profit of RM7.2mil for the first half of its financial year 2023 (1H23).

This constitutes only 30% of UOBKH Research’s full-year estimate, with the lower 1H23 profit primarily attributed to reduced contributions from its associate Wilmar International Ltd.

Taking into account reduced associate contribution and an improved margin for the grain and agribusiness segment, the research firm has adjusted its earnings projections for the financial years 2023 (FY23), FY24 and FY25 down by 27%, 22% and 8% to RM1.26bil, RM1.53bil and RM1.81bil, respectively.

Consequently, UOBKH Research, which has maintained its “buy” recommendation on the stock, adjusted its target price (TP) for PPB to RM19 per share.

MIDF Research, on the other hand, maintained its “neutral” call on PPB with an unchanged TP of RM15.17 a piece, as the optimism in PPB’s core business was tapered by the subdued performance of its associate.

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