PPB: Group Reports 1HFY24 Core Earnings Within Expectations Amid Segmental Headwinds

The group’s core PATAMI for the first half of fiscal year 2024 (1HFY24) reached RM638.4 million, aligning with both the bank’s and consensus expectations. This performance accounted for 50.8% and 46.3% of full-year estimates, respectively. Despite meeting overall expectations, the quarter saw some challenges, primarily due to softness in the grains and agribusiness segment and a reduced contribution from its associate, Wilmar.

Performance Review

For 1HFY24, the group recorded a 4.0% year-on-year increase in revenue to RM2,710.9 million and an 11.9% rise in operating profit to RM212.0 million. Core PATAMI also saw a robust 7.4% year-on-year growth. However, the second quarter of FY25 reflected some segmental pressures.

The Grains and agribusiness segment experienced a softening of pre-tax profit (PBT) to RM66.3 million in 2QFY25, a 3.1% year-on-year decline, largely attributed to sustained pressure on refining margins. Nevertheless, the segment’s first-half profit grew 12% year-on-year to RM191 million, bolstered by stronger performance in the flour and livestock sub-segments during 1QFY25.

In contrast, the Consumer products segment maintained relatively stable profitability, with pre-tax profit inching up to RM2.2 million. This was primarily driven by a 1.1% margin improvement, owing to lower trade promotion and operating costs, indicating effective cost management.

The Film exhibition and distribution segment demonstrated a significant turnaround, with its bottom-line improving to RM37.6 million (more than 100% year-on-year growth). This was fueled by higher admissions, strong net box office collection, increased concession profit, and notably, lower cinema operating costs, coupled with the absence of previous cinema closure expenses.

Contribution from associates, particularly Wilmar, was smaller, decreasing by 16.4% year-on-year to RM214.8 million for the quarter. While sales volumes generally improved across most segments (excluding sugar milling), earnings were mixed. The food products, plantation, and joint venture contributions grew, but feed and industrial products faced a 29% year-on-year decline due to challenging operating conditions in the tropical oils business and adverse refining margins. The lower contribution to the group was further exacerbated by FX translation losses resulting from a stronger Ringgit.

Outlook and Recommendation

The outlook for fiscal years 2025-2026 remains uncertain. Wilmar’s contribution faces potential risks should an ongoing legal case not result in a refund. Furthermore, the slower growth of China’s economy continues to indirectly impact the F&B and HORECA markets, adding to the challenging environment for refining margins.

In light of these factors, TA SECURITIES is maintaining its NEUTRAL rating for the stock. The target price has been revised downwards to RM9.01, from the previous RM10.61, based on an FY25F EPS of 88.4 sen pegged to a P/ER of 10.2x, which is near its 5-year historical -1SD.