PETALING JAYA: PPB Group Bhd
’s earnings are expected to rise from 2025 on the back of higher contributions from its core businesses as well as its stake in Wilmar International Ltd, says Affin Hwang Investment Bank (Affin Hwang Research).
The research house maintained a “buy” recommendation on the conglomerate’s stock with a lower target price of RM16.30.
However, it lowered 2024 to 2026 core earnings per share by 5.9% to 7.2% to account for the higher minimum wage, ringgit-US dollar assumptions, lower raw-material costs, higher consumer spending as well as the changes in contributions from the earnings of associate company Wilmar.
According to the research house, PPB has about 6,000 workers of which about 700 are foreign workers.
Following the increase in minimum wage as well as potential mandatory Employees Provident Fund contributions for all foreign workers, it adjusted PPBs margin to include the impact of the minimum wage starting from 2025, as it may impact the group’s core earnings by a low single digit.
It added that PPB’s consumer-products division has been adversely affected as the cost of doing business continued to rise coupled with fierce competition,
The research house said the group is continuing to intensify research and development efforts and expansion of offerings across its consumer product range.
“PPB remains focused on improving its marketing efficiency through its established network and logistical resources,” the research house said.
The stronger ringgit, however, will be favourable for PPB’s agribusiness segment as the group imports most of its raw materials, leading to improved margins for the flour milling business.
“Being the largest flour miller in Malaysia, PPB also has a competitive advantage over its peers in terms of the reach of its distribution network and economies of scale.
“We believe the ample supply of wheat coming in, coupled with lower raw-material costs in ringgit terms, would help to improve PPB’s profit margin for its flour milling business,” the research house said in a report, adding that Wilmar’s performance is key to PPB’s bottom line.
Despite expecting a much weaker contribution in core net profit in 2024 to about US$1.25bil due to weaker contribution from Wilmar’s China operations and sugar division, the research house noted that from 2025, Wilmar’s earnings are expected to increase in anticipation of improvement in demand for food products due to better global economic activity.
Earnings for feed and industrial products are also expected to improve on higher crushing margins.
“We believe Wilmar is committed to strengthening their existing operations and building new complementary businesses that would help in its long-term growth,” the research house added.
