Friday 29 Mar 2024
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KUALA LUMPUR (Jan 18): UOB KayHian has reiterated its "buy" call on PPB Group Bhd and revised up its target price to RM21.60 from RM20.40, as it sees the stock as a good proxy to its agri-business associate Wilmar International Ltd, as well as a consumer recovery play.

PPB’s share price is “highly correlated” to Wilmar’s as 70% to 75% of PPB’s profit before tax comes from Wilmar, UOB KayHian’s analysts Jacquelyn Yow Hui L and Leow Huey Chuen said in a note today. 

“The correlation between Wilmar and PPB has been 0.70x for the past five years, and has increased to 0.91x in 2020 with Wilmar’s subsidiary Yihai Kerry Arawana’s (YKA) successful listing on Shenzhen's ChiNext Board in October 2020,” they noted. 

They also pointed out that PPB has been a laggard to Wilmar. 

“YKA’s share price has soared multi-folds since its listing in October 2020, while Wilmar’s share price has also increased by 20%. Yet, PPB’s share price has edged up only 0.8% over the same period. For every 10% increase in Wilmar’s share price, PPB’s share price could increase by 6%,” they said. 

They also highlighted that with PPB holding 18.6% of Wilmar shareholding, the special dividend from Wilmar post listing of YKA, would lift PPB’s dividend yield by 0.8-1 percentage point on top of the expected 1.9% yield from the annual dividend.

Wilmar’s board had on Oct 20 announced a special dividend of approximately 15% from YKA's initial public offering proceeds of US$2.05 billion, which will be declared in 2021.

Meanwhile, the analysts expect PPB’s grains and agribusiness and consumer packs segments to continue to remain resilient in 2021 on the back of an economic recovery.

However, they said wheat prices, which have increased 24% since Sept 20, due to the increasing consumption but tight supply, might trim PPB’s operating margin. However, they added that it would be cushioned by the economic recovery in 2021.

They also said GSC may still continue to face headwinds as there are still uncertainties over the reopening of cinemas amid the Covid-19 pandemic.

The analysts cut their 2021 operating profit forecast for PPB by 18%, factoring in slightly lower margin for its grain and agribusiness segment due to higher wheat prices, and lower earnings for its film exhibition and distribution segment.

“Having said that, our revised net profit forecasts for 2020 to 2022 had increased by 30% to 35% (to RM1.14 billion, RM1.37 billion and RM1.52 billion [repectively]) after factoring in higher earnings contribution from Wilmar,” they said.

At noon break, PPB fell 16 sen or 0.83% to RM19.08, valuing the company at RM27.12 billion.

Edited ByJoyce Goh
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