PETALING JAYA: PPB Group Bhd
will likely spend about RM418.5mil in capital expenditure over the medium term to expand its flour and feed milling unit.
The diversified conglomerate is expected to enjoy robust demand for its flour and feed products over 2024 to 2025 amid the supportive job market in Malaysia, recovering tourist arrivals in Thailand and the buoyant Vietnam economy, according to Kenanga Research.
The brokerage noted that PPB’s plant utilisation under the grains and agribusiness operations currently stood at around 70% across the region.
According to PPB’s management during its 2023 results briefing for analyst, the group is looking to allocate half of its five-year capital expenditure of RM837mil towards its flour and feed milling unit.
“A four-acre site costing RM10mil has already been acquired in Pasir Gudang for expansion. Additional investments into the group’s flour and feed milling operations in China look increasingly likely thereafter,” Kenanga Research wrote in its report on the briefing.
The research house expected PPB’s margins to improve, but only gradually, as the sales of the group’s premium food products would likely remain soft, even though the demand for essential and basic food products should stay robust.
“Selling prices and, hence, margins are expected to improve only gradually. New product launches will veer towards essential food products as consumers focus on ‘necessities’ rather than premium goods over 2024 to 2025.
“Margins are now expected to be tighter than previously expected, given slower price rises,” Kenanga Research said.
It cut its 2024 to 2025 core net profits forecasts for PPB by 3% and by 4%, respectively, to reflect a more gradual margin improvement.
Consequently, its target price for the counter was lowered to RM18.50 from RM19.10 previously. The target price was based on 16 times the estimated earnings for 2024, in line with the average of larger and well capitalised integrated planters, it said.
Kenanga Research, however, maintained its “outperform” call on PPB.
Meanwhile, the brokerage noted PPB would be repositioning its cinema business with premium and niche products.
“PPB is repositioning Golden Screen Cinemas with new offerings such as the premium experience at Aurum Theatre in the Gardens Mall and TRX and niche screenings at Velvet in Mont Kiara, together with its existing format in new pockets in Selangor, Penang and potentially Johor.
“Efforts to increase local titles are ongoing, hence 2024 to 2025 should see profits again but margin recovery may be gradual,” Kenanga Research said.
As for the group’s property business, the research house said PPB did not expect much improvement in 2024 as the launch of new properties in Bedong, Kedah, is likely to take place only towards late 2024 or in 2025.
