PPB Group Bhd
(April 22, RM15.84)
Initiate neutral with a target price (TP) of RM15.30: PPB Group has an array of core businesses under the “consumer products” category. On the local bourse, it is listed as one of the 30 constituent companies of the FBM KLCI. It is also syariah-compliant.

Among PPB’s key business segments are: (i) flour and feed milling, and grains trading; (ii) marketing, distribution and manufacturing of consumer products; (iii) film exhibition and distribution; (iv) environmental engineering, waste management and utilities; (v) property investment and development; and (vi) chemicals livestock, investments and other operations.

PPB’s integrated business model revolves mainly around the consumer product segments. This strategy enables the company’s core business segments to complement each other, thus creating synergistic benefits.

Among the benefits of having such structure are economies of scale, and marketing and distribution advantages.

Besides the six core businesses, PPB is also involved in agribusiness via its associate, Wilmar International Ltd. It has sizeable exposure to agribusiness through a 18.3% stake in Wilmar. The exposure to Wilmar further strengthens its presence in the food and agribusiness.

However, its shareholding in Wilmar will also heighten PPB’s exposure to the volatilities in commodity price movements as well as foreign exchange rates, in particular the US dollar. On average, contribution from PPB made up more than 70% of PPB’s pre-tax profit.

We are initiating coverage of PPB with a “neutral” recommendation. We value PPB with a TP of RM15.30 per share based on sum-of-parts valuation methodology.

Our TP translates into an implied financial year 2016 (FY16) forward price-earnings ratio of 16.5 times based on FY16 forecast earnings per share of 92.7 sen. — MIDF Research, April 22

This article first appeared in The Edge Financial Daily, on April 23, 2015.