Initiating Coverage 30 October 2012 PPB GROUP Awaiting Wilmar earnings rebound MARKET PERFORM Price: RM13.82 Target Price: RM14.60 We are initiating coverage on PPB Group (PPB) and recommend MARKET PERFORM and Target Price of RM14.60 based on 20.8x Fwd. PER on its FY13E EPS of 70.2 sen. PPB is a good proxy to Wilmar s steady long term earnings growth prospect via its 18.3% stake in Wilmar (one of Asia's largest agribusiness groups listed in Singapore Exchange with total market cap of ~S$20b). YTD share price has corrected 20% and is now trading at near trough levels (14% discount to 3-year Avg. Fwd. PE and 23% discount to 3-year Avg. Fwd. PB). Lastly, PPB s strong balance sheet (RM712m net cash) should enable it to grow its flour business market share in Southeast Asia (SEA). However, we believe near term catalyst hinges on Wilmar Oilseeds & Grains division return to profitability. Wilmar s contribution to PPB Group s FY12-13E earnings will continue to be significant at 65%-69% of our estimated earnings of RM684m-RM832m. Good proxy to Wilmar solid long term earnings prospect. PPB Group owns 18.3% share of Wilmar, Asia s leading agribusiness group with business operations in palm oil downstream, palm oil upstream, oilseeds and grains processing and other business operations. In our view, PPB is a good proxy to Wilmar long term growth as Wilmar contribution to PPB Group s PBT is very significant (75% of PBT in FY11). YTD share price down 20% as 1H12 core net profit tumbled 47% YoY to RM287m. This is mainly caused by lower Wilmar contribution to PPB Group at RM209m (-52% YoY). Note that Wilmar 1H12 core net profit fall 53% YoY to US$378m as a result of US$93m Loss Before Tax (against 1H11: US$307m PBT) in Oilseeds & Grains division. We gather that the loss in this division was caused by negative soybean crush margin in China and depreciation of Renminbi against US$. Limited downside risks as valuations are near trough level. PPB Group is currently trading at 19.6x FY13E PE or 14% discount to its 3-year average Fwd. PE of 22.7x. The stock is also trading at FY13E Fwd. PB of 1.07x or 23% discount to its 3-year average Fwd. Price-To-Book of 1.39x. We think the relatively high discount to its long term average valuation reflects limited downside from current level. Strong balance sheet to support growth. PPB s strong balance sheet (RM712m net cash) should enable it to grow its flour business market share in Southeast Asia (SEA) given the region s strong economic growth prospect. Despite possible short term margin erosion, we think this strategy bodes well for PPB in the longer run as it should command better market presence in SEA in the future when the market become matured. Expect weak FY12E but better FY13E. PPB s FY12E core net profit should decline 30% YoY to RM684m in line with lower Wilmar earnings contribution as Wilmar s Oilseeds & Grains division should register Loss Before Tax (LBT) of US$153m (against FY11 PBT of US$423m). However, we believe FY13E core net profit should improve 22% YoY to RM832m as Wilmar soybean crushing margin recovers. But upside also limited until clear sign of recovery at Wilmar Oilseeds & Grains is seen. Initiate with MARKET PERFORM. We believe Wilmar contribution to PPB Group earnings will continue to be significant in FY12E-FY13E at 65%-69%. Hence, we think key catalyst for PPB will be the return of Wilmar Oilseeds & Grains division to profitability. Share Price Performance 20.00 18.00 16.00 14.00 12.00 10.00 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 KLCI 1672.56 YTD KLCI chg 8.5% YTD stock price chg -6.7% Stock Information Bloomberg Ticker PEP MK Equity Market Cap (RM m) 16,383.6 Issued shares 1,185.5 52-week range (H) 17.98 52-week range (L) 11.90 3-mth avg daily vol: 398,152 Free Float 38% Beta 0.9 Major Shareholders KUOK BROTHERS S/B 50.8% EPF 9.9% VANGUARD GROUP INC 1.7% Summary Earnings Table FY Dec (RM m) 2011A 2012E 2013E Turnover 2711 3041 3134 EBIT 228 230 246 PBT 1057 765 916 Net Profit (NP) 980 684 832 Core NP 980 684 832 Consensus (NP) - 772 992 Earnings Revision - New New Core EPS (sen) 82.70 57.74 70.19 Core EPS growth (%) -6.3% -30.2% 21.6% NDPS (sen) 23.0 14.4 17.5 Book Value (RM) 11.86 12.29 12.82 Core PER 16.7 23.9 19.7 Price/BV (x) 1.16 1.12 1.07 Net Gearing (x) N.Cash N.Cash N.Cash Net Dvd Yield (%) 1.7% 1.0% 1.3% Lim Seong Chun (Alan) alan.lim@kenanga.com.my +603 2713 2292 PP7004/02/2013(031762)
INITIATING COVERAGE ON PPB Initiating coverage with a MARKET PERFORM call and TP of RM14.60. We are initiating coverage on PPB with a MARKET PERFORM call and a Target Price of RM14.60 based on Fwd. PE of 20.8x to FY13E EPS of 70.2sen. Our Fwd PE of 20.8x is based on negative 0.5 Standard Deviation (-0.5SD) on historical 3-year Fwd. PER. The valuation of -0.5SD is a discount to other planters which we value at the range of average to +1SD. We believe the discount is justified due to challenging operating environment for Wilmar Oilseeds & Grains segment which should register negative margin in FY12E. While we believe share price upside is limited until clear sign of recovery at Wilmar Oilseeds & Grains segment is seen, the downside should be supported by its book value of RM11.98 as of 2Q12. Investment Case Good proxy to Wilmar long term good earnings prospect. PPB Group owns 18.3% share of Wilmar, the largest palm oil downstream processors with total 127 plants and refining capacity of 27m mt annually which processes palm and lauric oils into refined oils, specialty fats, oleochemicals and biodiesel. Besides palm oil, Wilmar also have downstream operations for other oilseeds via its 77 plants with refining capacity of 25m mt. For palm oil upstream segment, Wilmar is the world s 4th largest planter which owns planted landbank of 247,000 ha. With total 137 plants located in China, we are positive on Wilmar long term outlook as China overall demand for edible oil should increase in tandem with higher per capita consumption and population growth. In our view, PPB is a good proxy to Wilmar long term growth as Wilmar contribution to PPB Group s PBT is very significant. In FY11, earnings from Wilmar contributed RM790m or 75% of the total Group PBT. We expect this trend to continue with Wilmar contribution continue to command 65%-69% of PPB Group PBT for the next 5 years. Attractive valuation at near trough levels. PPB Group is currently trading at 19.6x FY13E PE or 14% discount to its 3- year average Fwd. PE of 22.7x. The stock is also trading at FY13E Fwd. PB of 1.07x or 23% discount to its 3-year average Fwd. Price-To-Book of 1.39x. We think the relatively high discount to its long term average valuation reflects limited downside from current level. Strong balance sheet of RM712m net cash or 60 sen per share to support growth. Combined with expected healthy FY12-13E operating cash flow of RM95m-RM200m and dividend received from Wilmar at RM108m-RM132m, the Company should be able to fund its FY12-13E capex comfortably at ~RM156m each while keeping its dividend payment of RM171m-RM208m (or 14.4 sen-17.5 sen per share). We expect PPB to invest most of its capex to grow its flour business market share in Southeast Asia given the region s strong economic growth prospect. Despite possible margin erosion in the short term, we think this strategy bodes well for PPB in the longer run as it should command better market presence in Southeast Asia in the future when the market become matured. Challenging FY12E for Wilmar, but we expect better FY13E. Admittedly, Wilmar core earnings should be weaker YoY in FY12E (-34% YoY to US$1.00b) as its in Oilseeds & Grains segment should register Loss Before Tax of ~US$153m resulting from negative margin for soybean crushing in China. This is caused by high raw material price (soybean) and the situation in China in which Wilmar cannot pass through all of its cost increase to consumers. However, Wilmar FY13E earnings should recover to US$1.29b (+29% YoY) as Oilseeds & Grains segment should return to profitability as soybean price should normalize in 2013 due to more soybean supply coming into market from Brazil and Argentina. This should ease Wilmar cost pressure and made margin more attractive. At PPB Group level, we expect Wilmar contribution in FY12E to decline 37% YoY to RM496m but to recover 27% YoY to RM630m in FY13E. Since 2008, Wilmar contributed at least 66% of PPB Group PBT 1400 1200 1000 800 600 400 200 0 2007 2008 2009 2010 2011 2012F 2013F 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Profit Contribution from Wilmar % of Group PBT, Kenanga Research Page 2 of 10
Expect better 3Q12 result for PPB as Wilmar earnings may have bottomed in 2Q12. In line with expected better QoQ earnings for Wilmar, we expect PPB Group 3Q12 earnings to improve QoQ from its 3-year low level of RM108m in 2Q12. Wilmar s Oilseeds & Grains divisions should register lower losses QoQ as back-to-back soybean margin has improved in 3Q12. However, the division should still register loss as margin remains depressed due to soybean processing overcapacity in China. Overall, the division s 2H12E Loss Before Tax (LBT) should trim down to ~US$60m (against 1H12 LBT of US$93m), making full year FY12E LBT of US$153m. For 3Q12, palm oil downstream divisions should benefit from the expanded refining capacities in Indonesia while its upstream divisions should benefit from seasonally higher FFB production QoQ. PPB 2Q12 net profit should have bottomed from its 3-year low 700 600 500 400 300 200 100 0 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 4 th largest FBMKLCI plantation related stocks by market cap. With a total market cap of c.rm16.3b, PPB is currently the 23 rd largest stock by market cap among FBMKLCI members, slightly below RHBCAP s current market cap of RM16.7b. Big cap planters on the index tend to command an average 30% premium valuation over the non-index planters. Market Capitalization Ranking for KLCI plantation stocks FBMKLCI Peers Market Cap SIME 58.8 IOICORP 32.2 KLK 22.8 PPB 16.3 Source: Bloomberg (RM'b) PPB Grain trading, flour & feed milling division is still growing decently with its 1H12 PBT increase by 8% YoY to RM66m. We gather that the improvement was caused by higher grains trading volume and higher flour and feed sales with its sales surge by 24% YoY to RM905m. However, some margin erosion was noticed with 1H12 PBT margin declined to 7.8% (from 9.4% in 1H11) due to high wheat prices and more intense competition. Recall that PBT contribution to the Group is relatively significant, contributing RM135m or 11% of PPB Group PBT. Going forward, we expect this division to grow modestly at 5-year CAGR of 5% up to FY16 driven by its regional expansion in China, Malaysia, Vietnam and Indonesia. Risks Longer than expected negative soybean crushing margin at Wilmar. This could be caused by sustained high soybean feedstock prices, price controls in China and continued overcapacity in soybean crushing sector. Hence, Loss Before Tax at Wilmar s Oilseeds & Grains segment may continue into FY13E. However, such risk appears to be low at current juncture as we expect lower soybean prices after the current tightness in soybean market should ease with the arrival of soybean crops from South America in early 2013. We also believe that China is unlikely to impose more price control in view of very low inflation rate of 2.0% as of Aug-2012. The ongoing overcapacity is still a structural problem within China soybean crushing industry (with utilization at only ~50% according to state-backed China National Grain & Oils Information Center). However, we believe that utilization should increase over time as inefficient operators logically will not continue operating at negative margin in the longer run. Page 3 of 10
Lower than expected margin at Wilmar palm oil downstream. We gather that total palm oil downstream capacity in Indonesia is expected to surge by 65%-70% to ~43m mt in the next 2 years. This is caused by attractive margin for palm oil downstream players in Indonesia due to cheaper crude palm oil feedstock as a result of export tax change since Sep- 2011. In the longer run, margin should decline as more refineries are setup in Indonesia and we have assumed steady decline of PBT/mt from US$32.7/mt in FY12E to US$28.2/mt in FY16E. However, margin decline should be mitigated by higher volume as Wilmar is expected to increase its CPO downstream capacity by 3.5m mt or 50% to 10.5m mt in 2H12. CPO prices volatility risk will affect Wilmar palm oil upstream earnings. As Plantation & Palm Oil Mills makes up a significant 35% of Wilmar PBT in FY11, sustained decline in CPO prices will affect overall Wilmar earnings. We currently assume FY12-FY13E CPO prices at US$960-US$980/mt or RM2975-RM3000/mt per mt. For every RM100 decline in CPO prices, we expect Wilmar FY12-13E earnings to be affected by 1.5%-1.3% respectively, causing 1.1%-1.0% change in PPB FY12E and FY13E earnings respectively. High wheat feedstock prices may affect PPB flour milling margin. PPB grains trading, flour and feed milling division (13% PBT contribution) earnings is mainly derived from flour milling business which use wheat as its major feedstock. Wheat prices are volatile as its supply is volatile depending on weather condition in major exporters such as United States. If wheat prices sustain at current high price for a prolonged period beyond 2012, PPB Grains trading, flour and feed milling division margin may be affected as it may not be able to pass on its higher cost immediately. Flour is usually regulated by the Government in order to maintain price stability. Earnings Outlook & Valuation Expect PPB net profit to recover in FY13E 1600 1400 1200 1000 800 600 400 200 0 78% 87% 72% 81% 73% 76% 2008 2009 2010 2011 2012F 2013F PPB Core Net Profit (RM m) Wilmar Contribution (RM m) % of Wilmar contribution 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% PPB 1H12 core net profit tumbled 47% YoY to RM287m as Wilmar contribution to PPB Group declined 52% YoY to RM209m. This is in line with lower Wilmar 1H12 core net profit of US$378m (-53% YoY) as a result of US$93m Loss Before Tax (against 1H11: US$307m PBT) in Oilseeds & Grains division. We gather that the loss in this division was caused by negative soybean crush margin in China and depreciation of Renminbi against US$. Result Highlight 2Q 1Q QoQ 2Q YoY 6M 6M YoY FY Dec (RM m) FY12 FY12 Chg FY11 Chg FY12 FY11 Chg Revenue 758.5 697.0 9% 676.2 12% 1455.4 1256.1 16% EBIT 51.2 59.7-14% 71.8-29% 110.9 132.2-16% Pretax Profit 123.9 199.7-38% 294.7-58% 323.6 578.1-44% Taxation -8.3-13.5-38% -7.3 14% -21.8-17.7 23% MI -7.1-7.7-7% -10.9-35% -14.8-18.8-21% Net Profit 108.4 178.5-39% 276.4-61% 286.9 541.7-47% EPS (sen) 9.15 15.06-39% 23.32-61% 24.20 45.69-47% Wilmar Contribution 68 141-52% 216.0-69% 209 434-52% Wilmar % of Pretax Profit 55% 71% 73% 65% 75% EBIT % 6.8% 8.6% 10.6% 7.6% 10.5% PBT % 16.3% 28.6% 43.6% 22.2% 46.0% Tax % -6.7% -6.7% -2.5% -6.7% -3.1%, Kenanga Research Page 4 of 10
Segmental Breakdown 2Q 1Q QoQ 2Q YoY 6M 6M YoY FY Dec (RM m) FY12 FY12 Chg FY11 Chg FY12 FY11 Chg Revenue - Grain trading, flour & feed milling 468.6 436.1 7% 394.8 19% 904.6 731.4 24% - Film exhibition & distribution 73.4 68.9 7% 71.9 2% 142.3 136.8 4% - Consumer Products 94.6 96.9-2% 93.2 2% 191.5 185.3 3% - Env. Engr, waste mgt & utilities 29.9 29.8 0% 43.2-31% 59.7 72.7-18% - Property 20.6 19.7 5% 9.2 125% 40.3 18.3 120% - Others 111.7 84.5 32% 106.1 5% 196.2 191.7 2% - Elimination (40.3) (38.9) 4% (42.0) -4% (79.2) (80.1) -1% Group revenue 758.5 697.0 9% 676.2 12% 1,455.4 1,256.1 16% Segment PBT - Grain trading, flour & feed milling 24.9 45.5-45% 25.1-1% 70.4 68.7 2% - Film exhibition & distribution 11.6 8.4 38% 11.8-2% 20.0 21.9-9% - Consumer Products 4.4 4.3 1% 4.0 8% 8.7 8.9-3% - Env. Engr, waste mgt & utilities 5.8 2.4 145% 6.3-8% 8.2 8.8-7% - Property 8.2 4.0 106% 5.1 59% 12.2 10.6 15% - Others (1.0) (7.4) -87% 23.9-104% (8.4) 20.4-141% - Wilmar contribution 68.2 140.9-52% 216.6-69% 209.1 434.4-52% - Net Int Income /(Exp) 6.4 5.1 27% 7.9-19% 11.5 14.2-19% - Unallocated Corp Exp -4.0-3.9 2% -6.2-36% (7.8) (10.0) -22% - Elimination (0.6) 0.4-267% (0.0) 3919% (0.3) 0.2-241% Group PBT 123.9 199.7-38% 294.7-58% 323.6 578.1-44%, Kenanga Research Expect weak PPB FY12E core net profit of RM684m (-30% YoY). We expect Wilmar core earnings to decline 34% YoY to US$1.00b, causing its contribution to PPB Group to drop 37% YoY to RM496m. The impact of the earnings decline in FY12E is more serious at PPB Group level at 37% (against Wilmar s 34%) due to expected weaker Ringgit (with USD expected to strengthen by 1.4% YoY to 3.10). Note that Wilmar contribution to PPB earnings should remain very significant at 65% of the Group s PBT in FY12E. For Wilmar, FY12E earnings decline is mainly caused by its Oilseeds & Grains division which should register Loss Before Tax (LBT) of US$153m (against FY11 PBT of US$423m). This is caused by negative margin for soybean crushing in China due to overcapacity problem and high soybean feedstock prices. Wilmar FY12E palm oil upstream earnings should be weak but the impact mitigated by downstream earnings growth. Wilmar Plantation & Palm Oil Mills division (palm oil upstream) PBT is expected to decline 48% YoY to US$382m due to lower CPO prices (-10% YoY to US$960/mt), lower palm kernel prices (-26% YoY to US$524/mt) and higher production cost (+13% YoY). However, Palm & Laurics division (palm oil downstream) earnings should grow 28% YoY to US$751m as its PBT margin should improve 13% YoY to US$32.7/mt while total sales volume should also increase 13% YoY to 23.0m mt. Better margin is caused by lower CPO feedstock prices after Indonesia government change its export tax structure which effectively lower CPO feedstock prices for all downstream players in Indonesia. Meanwhile, total downstream sales volume should increase as Wilmar expand its total annual capacity by 3.5m mt or 12% to 30.2m mt. Better global soybean supply in new planting season should lower Wilmar soybean feedback cost Total Oil 2012/2013F 2011/2012 2010/2011 2009/2010 Opening Stocks 55.45 75.70 65.00 44.50 Production 269.31 239.67 264.79 259.96 Total Supply 324.76 315.37 329.79 304.46 Crushing 230.36 226.94 221.66 207.94 Other Use 34.4 32.98 32.43 31.52 Total Demand 264.76 259.92 254.09 239.46 End Stocks 60.00 55.45 75.70 65.00 Stock/Usage Ratio 22.66% 21.33% 29.79% 27.14% Source: Oil World Page 5 of 10
PPB FY13E core net profit should improve 22% YoY to RM832m as Wilmar soybean crushing margin recovers. We expect Wilmar core earnings to recover 29% YoY to US$1.29b, hence its contribution to PPB Group should increase 27% YoY to RM630m. The impact of the earnings increase in FY13E is slightly lower at PPB Group level at 27% (against Wilmar s 29%) due to expected weaker USDMYR of 3.06 (-1.3% YoY). Overall, Wilmar contribution will still be significant in FY13E at 69% of PPB Group s PBT. In FY13E, we expect Wilmar Oilseeds & Grains division to return to profitability with PBT of US$150m (against FY12E Pretax Loss of US$153m). We believe margin for soybean crushing in China should recover as soybean feedstock prices should decline in FY13E due to better supply outlook from South America. According to Oil World, 2012/13 season soybean production should grow by 12% YoY to 269m mt while global crushing should stay flat at 230m mt (+1.5% YoY). Hence, ending stocks is poised to increase by 8% to 60m mt. Stable growth for PPB flour milling and film business. Besides Wilmar earnings contribution at associate level, PPB other material earnings contribution come from its Grain trading, flour & feed milling or GFF division (13% of PBT) and Film exhibition & distribution or cinema division (4% of PBT). We expect GFF division FY12-13E EBIT to grow 7%-4% to RM145m-RM151m as its flour milling operations in Indonesia, Thailand and Vietnam should enjoy good revenue growth in line with higher per capita consumption in these emerging economy. Meanwhile, cinema division FY12-13E EBIT should grow 2%-3% to RM38m-RM39m as contribution from 6 new Golden Screen Cinema multiplexes kicks in. Other operations. PBB also has other business operations such as Marketing, distribution & manufacturing of consumer products, Environmental engineering, waste management & utilities, Property investment & development, Chemicals trading & manufacturing, Livestock farming and Equity investment. Overall, combined effect to PPB Group s PBT is minimal at less than 5%. Fair value of RM14.60. Our valuation is based on Fwd PE of 20.8x to FY13E EPS of 70.2sen. Our Fwd PE of 20.8x is based on negative 0.5 Standard Deviation (-0.5SD) on 3-year Fwd PER. The valuation of -0.5SD is a discount to other planters which we value at the range of average to +1SD. We believe the discount is justified due to challenging operating environment for Wilmar Oilseeds & Grains segment which should register negative margin in FY12E. Initiate with MARKET PERFORM. Upside is limited until clear sign of recovery at Wilmar Oilseeds & Grains is seen. But downside supported by its book value of RM11.98 as of 2Q12. YTD, PPB share price has declined 20% which we think is likely due to lower earnings in 1H12 at RM287m (-47% YoY). From valuation perspective, it is currently trading at 19.6x FY13E Fwd PER (14% below its 3-year average Fwd PER of 22.7x). PPB Fwd Price-To-Book Ratio (PBR) has also fallen to 1.07x FY13E BV (23% below its 3-year average Fwd PB of 1.39x). We believe that the negative reaction on share prices may have priced in weak earnings outlook for FY12E. Appendix Background & Business Top 30 FBMKLCI stocks with main business operations in food manufacturing. PPB was founded by Tan Sri Robert Kuok in 1968 with the main business focus on cultivation and milling of sugar cane in Chuping, Perlis. 4 years later, the Company gained its listing status on Bursa Malaysia in 1972. PPB has since grown into a major conglomerate with market cap exceeding RM14b and is a member of the FBMKLCI index. The Group currently operates in China, Vietnam, Indonesia, Myanmar, Thailand and Singapore and employs more than 3,500 employees in total. Currently, PPB is positioning itself as a dominant player in grains trading, flour and animal feed milling as well as downstream activities including livestock farming; food processing; bakery and marketing and distribution of consumer products. Owns 18.32% stake in Wilmar, making it the largest shareholder. Wilmar is one of Asia's largest agribusiness groups which is listed in Singapore Exchange with total market cap of ~S$21b. Wilmar owns more than 400 manufacturing plants and has extensive distribution network covering China, India, Indonesia and some other 50 countries. The Company s businesses include oil palm cultivation, oilseeds crushing, edible oils refining, sugar milling and refining, specialty fats, oleochemicals, biodiesel and fertilisers manufacturing and grains processing. In palm oil downstream sector, Wilmar is the world's largest processor and merchandiser of palm and lauric oils. For palm oil upstream, Wilmar is the world s 4th largest oil palm plantation operators with total planted area of 248,245 ha (as of 2Q12). In China, Wilmar is one of the largest oilseeds crushers, edible oils refiners, specialty fats and oleochemicals manufacturers, and flour and rice millers. PPB Group is the largest shareholder in Wilmar with 18.32% stake Shareholders Stake (%) PPB Group Berhad 18.32 Citibank Nominees Singapore 8.87 HSBC (Singapore) Nominees 6.21 Page 6 of 10
Other businesses. Besides food manufacturing, PPB owns Golden Screen Cinemas Sdn Bhd or GSC which is the largest cinema operators in Malaysia with 197 screens in 24 locations nationwide. We gather that GSC command ~40% of Malaysia box office collections. PPB other diversified businesses include environmental engineering and waste management, contract manufacturing, chemicals manufacturing, property development and management and packaging operations. Very experienced management team. Overall, most of PPB Group top management has more than 15 years of experience within Kuok Group of companies. PPB Group s Chairman (Datuk Oh Siew Nam) has been with the Company since its establishment in 1968 and served various positions before he was appointed as Chairman in Feb 2008. Although Mr Lim Soon Huat has been Managing Director of PPB Group for only three months, he has more than 15 years of experience with the Kuok Group and had been on PPB s board since May 2008. PPB Group Board of Management Name Designation Remarks Datuk Oh Siew Nam Mr Lim Soon Huat YM Raja Dato' Seri Abdul Aziz bin Raja Salim Dato' Capt. Ahmad Sufian @ Qurnain bin Abdul Rashid Chairman Non-Independent Executive Director Managing Director Non-Independent Executive Director Independent Non-Executive Director Independent Non-Executive Director Bachelor of Engineering (Honours) degree in Electrical Engineering from the University of Canterbury, New Zealand 44 years of experience in PPB Group Former Managing Director (1982-2002) and Executive Chairman (2002-2006) of FFM Board member of Bank Negara Malaysia since 1989 Bachelor of Science (Honours) in Statistics from Universiti Kebangsaan Malaysia. More than 15 years of financial & corporate management experience with the Kuok Group of companies in Singapore, Thailand, Hong Kong & China Fellow of the Chartered Association of Certified Accountants and Chartered Institute of Management Accountants, UK Member of the Malaysian Institute of Accountants Former Director-General of Inland Revenue, Malaysia Former Accountant-General of Malaysia Fellow of the Chartered Association of Certified Accountants and Chartered Institute of Management Accountants, UK Member of the Malaysian Institute of Accountants Former Director-General of Inland Revenue, Malaysia Former Accountant-General of Malaysia Mr Ong Hung Hock Non-Independent Non- Executive Director Bachelor of Arts (Honours) degree from the University of Malaya Managing Director of FFM Berhad and Executive Chairman of FFM Marketing Sdn Bhd More than 22 years of experience with the Kuok Group and had over the years held several senior managerial positions Kuok Group is the biggest shareholders which hold 50.17% of PPB Group s shares through Kuok Brothers Sdn Berhad. This is followed by Employee Provident Fund at 9.35% and Nai Seng Sdn Berhad (Johor based Company specializing in wholesale business) at 3.44%. Overall, PPB Group s shares are tightly held as top 5 major shareholders already own 67% of the total shares. PPB Group is the largest shareholder in Wilmar with 18.32% stake Shareholders Stake (%) Kuok Brothers Sdn Berhad 50.17 Employee Provident Fund (EPF) 9.35 Nai Seng Sdn Berhad 3.44 Kumpulan Wang Persaraan (KWAP) 2.24 Credit Suisse 2.00 Page 7 of 10
PPB Group Corporate Structure Page 8 of 10
Income Statement Financial Data & Ratios FY Dec (RM m) 2009A 2010A 2011A 2012E 2013E FY Dec (RM m) 2009A 2010A 2011A 2012E 2013E Revenue 2054 2274 2711 3041 3134 Growth EBITDA 301 433 323 334 355 Turnover (%) -17.5 10.7 19.2 12.2 3.1 Depreciation 71 78 94 104 109 EBITDA (%) -10.0 43.9-25.5 3.6 6.3 Operating Profit 230 355 228 230 246 Operating Profit (%) -15.8 54.0-35.7 0.9 6.9 Interest Exp -7-5 -6-6 -6 PBT (%) 23.5 17.6-46.4-27.6 19.7 Interest Income 7 34 32 32 32 Core N.Profit (%) 21.4-25.1-6.3-30.2 21.6 Associate 1240 772 815 520 655 JV Profit 1 10 5 5 5 Profitability (%) Corp Exp -16-34 -17-16 -16 EBITDA Margin 14.7 19.0 11.9 11.0 11.3 PBT 1675 1970 1057 765 916 Operating Margin 11.2 15.6 8.4 7.6 7.9 Taxation -46-61 -44-48 -52 PBT Margin 70.9 49.8 39.0 25.2 29.2 Minority Interest -13-24 -32-32 -32 Core Net Margin 68.0 46.0 36.2 22.5 26.5 Net Profit 1616 1885 980 684 832 Effective Tax Rate 3.2 5.4 4.2 6.3 5.6 Core Net Profit 1396 1046 980 684 832 ROA 11.5 14.2 7.0 4.7 5.5 Balance Sheet FY Dec (RM m) 2009A 2010A 2011A 2012E 2013E DuPont Analysis ROE 10.7 13.5 6.5 4.4 5.1 Fixed Assets 922 957 1018 1070 1116 Net Margin (%) 78.7% 82.9% 36.2% 22.5% 26.5% Biological Assets 3 3 3 3 3 Assets Turn. (x) 0.14 0.16 0.18 0.19 0.19 Intangible Assets 74 76 76 76 76 Leverage Fact. (x) 1.07 1.05 1.08 1.08 1.07 Associate (mainly Wilmar) 10628 10000 11041 11428 11926 ROE (%) 11.5% 14.2% 7.0% 4.7% 5.5% Jointly Controlled Entity 30 47 52 52 52 Other LT Assets 1113 1165 833 972 1077 Leverage Inventories 378 317 474 532 548 Debt/Asset (x) 0.01 0.01 0.02 0.01 0.01 Receivables 242 264 342 384 395 Debt/Equity (x) 0.01 0.01 0.02 0.01 0.01 Other CA 1087 183 227 227 227 Net Cash/(Debt) 470 810 878 769 753 Cash 589 924 1135 925 909 Net Debt/Eqty. (x) N.Cash N.Cash N.Cash N.Cash N.Cash Total Assets 15067 13935 15199 15669 16330 Valuations Payables 146 135 137 161 166 Core EPS (sen) 117.77 88.25 82.70 57.74 70.19 ST Borrowings 36 75 212 112 112 NDPS (sen) 73.0 88.0 23.0 14.4 17.5 Other ST Liability 471 136 161 161 161 Book Value (RM) 11.88 11.20 11.86 12.29 12.82 LT Borrowings 83 39 45 45 45 Core PER (x) 11.7 15.7 16.7 23.9 19.7 Other LT Liability 72 70 80 80 80 Net Div. Yield (%) 5.3% 6.4% 1.7% 1.0% 1.3% Minorities Int. 173 204 504 536 568 P/BV (x) 1.16 1.23 1.17 1.12 1.08 Net Assets 14087 13277 14062 14575 15199 EV/EBITDA (x) 52.85 35.95 48.07 46.72 43.99 Share Capital 1186 1186 1186 1186 1186 Retained Earnings 11938 12182 12911 13425 14049 Share Premium & Other Rsv. 963-90 -35-35 -35 Equity 14087 13277 14062 14575 15199 Cashflow Statement FY Dec (RM m) 2009A 2010A 2011A 2012E 2013E Operating CF 473 244-20 95 200 Investing CF 199 1604 45-27 -3 Financing CF -429-1649 185-277 -214 Change In Cash 243 200 210-209 -17 Free CF 671 1848 25 68 197 Source: Kenanga Research Fwd PER Band Fwd PBV Band 6.00 PRICE (RM) 13.9 x 6.00 PRICE (RM) 13.9 x 16.6 x 16.6 x 5.50 19.3 x 5.50 19.3 x 22.0 x 22.0 x 5.00 24.7 x 27.4 x 5.00 24.7 x 27.4 x 4.50 4.50 4.00 4.00 RM RM 3.50 3.50 3.00 3.00 2.50 2.50 2.00 2.00 1.50 1.50 1.00 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 1.00 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Source: Kenanga Research Page 9 of 10
Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM : A particular stock s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). MARKET PERFORM : A particular stock s Expected Total Return is WITHIN the range of 3% to 10%. UNDERPERFORM : A particular stock s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). Sector Recommendations*** OVERWEIGHT : A particular stock s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). NEUTRAL : A particular stock s Expected Total Return is WITHIN the range of 3% to 10%. UNDERWEIGHT : A particular stock s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). ***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage. This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) 8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Telephone: (603) 21666822 Facsimile: (603) 21666823 Website: www.kenangaresearch.com Chan Ken Yew Head of Research Page 10 of 10