PETALING JAYA: The RM43mil fine meted out by the Malaysia Competition Commission (MyCC) has resulted in Kenanga Research downgrading PPB Group Bhd
’s target price from RM19.30 to RM18.40.
MyCC fined five chicken feed manufacturers including FMM Bhd, which is 80% owned by PPB Group.
To recap, MyCC said last year it was investigating a number of poultry industry players for infringing Section 4 of the Competition Act 2010.
Then, in August 2022, it issued a notice of proposed decision against five feed millers for entering into anti-competitive agreements or concerted practices to increase the prices of poultry feed containing soya meal and maize as its main ingredients starting from early 2020 to the middle of 2022.
FMM subsequently said it would consider challenging the fine because it had no merit.
Kenanga Research said that if FMM did challenge the fine, the impact on PPB’s financial year 2023 core net profit will be less than 5%, considering it was already a soft year for the group.
“Whilst the financial impact may not be material to PPB, the impact on the group’s reputation is still negative in the short term.
“However, we suspect the long-term reputational impact is likely to be minimal and FFM’s feed business is also unlikely to suffer much, as the group has a long established and strong presence in the region’s milling supply chain and market,” the research house said.
However, Kenanga Research will maintain its “outperform” call on PPB, as well as its 2023 and 2024 earnings per share.
It also added that in light of the negative short-term reputational impact of MyCC’s latest decision on PPB, it will tone down PPB’s four-star environmental, social and governance rating to three stars and remove the 5% premium.
“The overall investment merits for PPB remains intact, namely its strong market position in consumer essentials, including ready-to-eat meals and mass consumer entertainment in South-East Asia, as well as its integrated exposure in oil palm and sugar,” it said.
Kenanga Research noted the group still had a strong balance sheet and should expect an earnings recovery from next year onwards.
It said risks included the weather impact on edible soil, inflation in production costs and unfavourable commodity prices.
