PPB Group Bhd is poised to benefit from growing food demand, given its established presence as the country’s largest sugar and flour miller, HwangDBS Vickers Research said yesterday when maintaining a buy recommendation on the stock.
The company, it said, is on track to deliver a projected FY2008-FY2010 net profit CAGR (compound annual growth rate) of 17%, supported by associate contribution from Singapore Exchange-listed Wilmar International Ltd as well as profits from the sale of sugar and flour.
In addition, as PPB’s current market capitalisation reflected only its 18% stake in Wilmar, HwangDBS said investors are “getting non-Wilmar assets for free”. These non-Wilmar assets include the largest flour miller and sugar refiner in Malaysia, the research house added.
“Wilmar accounts for 79% and 77% of PPB’s FY08-09F net profit. Wilmar’s prospects remain promising despite the softening commodity prices because it has strengthened its position in China’s oilseeds crushing segment and the consumer pack cooking oil market by gaining share from smaller, less efficient players,” it said.
“We continue to like PPB Group for its agribusiness growth, attractive valuations and upside from Wilmar,” HwangDBS added.
PPB, it said, is trading at an attractive 11 times FY2009 earnings against Wilmar’s 17 times and Malaysia’s large-cap plantation sector average of 14 times.
HwangDBS has a RM13.40 target price for PPB Group, derived from a sum-of-parts valuation which assumes Wilmar’s fair value at S$4.70 (RM11.20) per share, having imputed a 20% holding company discount to Wilmar’s target price of S$5.85 per share.
“Looking ahead, we expect sustainable net DPS (dividend per share) of 30 sen and 31 sen (net yield of 3%) for FY08-09F based on dividend from Wilmar and PPB’s planned FY08-09F capital expenditure (capex) of RM300 million,” it said. On May 12, PPB paid a special gross dividend of 62 sen per share.
The planned capex includes RM104 million for sugar refining and production facilities, RM150 million for flour operations and RM43 million for new cinema screens.
“We understand that PPB may want to acquire a larger stake in Wilmar if valuations are attractive and PPB’s cashflow is adequate,” the research house added. PPB fell 15 sen to close at RM9.55 yesterday.
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