Stock Name: PPB
Company Name: PPB GROUP BHD
Research House: HWANGDBS
PPB Group Bhd
(March 8, RM16.60)
Maintain hold at RM16.10, target price at RM17.50: PPB Group has clarified that the RM600 million proceeds (after paying a special 50 sen dividend per share) from the sale of its sugar business would be utilised to expand its flour business in Indonesia and Vietnam, and to grow its property business.
PPB has a 1,000-tonne mill in Indonesia that was commissioned in October 2009. The utilisation rate is 40% currently, but will reach 55%-60% by year-end and generate RM10 million to RM12 million profit (12% of FY09 flour earnings before interest and tax (Ebit).
Indonesia is its key flour market given the large population (10 times of Malaysia's), lower flour consumption per capita (half of Malaysia's), and more importantly, it is an unregulated market there.
2010 will be a better year for its flour business, with lower overall wheat prices of US$270-US$280/tonne, almost half the peak of US$500/tonne. We are assuming average utilisation rates of 75%-80% and 10% Ebit margins, translating into 17% and 37% growth in revenue and Ebit to RM1.3 billion and RM128 million in FY10, respectively.
PPB said besides 1973, 2009 was the worst year for its flour business (-19% and -44% year-on-year decline in revenue and Ebit) due to higher wheat prices and collapse of futures prices.
The sweetener will be an expected liberalisation of the flour business in mid-2010, where prices will be based on market forces and volumes for general-purpose flour will rise. PPB is also exploring potential joint ventures with Wilmar to expand its flour business in China and India.
Valuation seems reasonable at 12 times CY11 earnings per share (EPS) (versus 17 times-18 times for IOI and Sime) for a large-cap agriculture-based company, but there is no near-term catalyst.
However, the management has strong business acumen and should make further inroads into the flour business. We prefer Wilmar (buy, target price S$8) as a more liquid direct proxy to growing opportunities in China. - HwangDBS Vickers Research, March 8
This article appeared in The Edge Financial Daily, March 09, 2010.
Company Name: PPB GROUP BHD
Research House: HWANGDBS
PPB Group Bhd
(March 8, RM16.60)
Maintain hold at RM16.10, target price at RM17.50: PPB Group has clarified that the RM600 million proceeds (after paying a special 50 sen dividend per share) from the sale of its sugar business would be utilised to expand its flour business in Indonesia and Vietnam, and to grow its property business.
PPB has a 1,000-tonne mill in Indonesia that was commissioned in October 2009. The utilisation rate is 40% currently, but will reach 55%-60% by year-end and generate RM10 million to RM12 million profit (12% of FY09 flour earnings before interest and tax (Ebit).
Indonesia is its key flour market given the large population (10 times of Malaysia's), lower flour consumption per capita (half of Malaysia's), and more importantly, it is an unregulated market there.
2010 will be a better year for its flour business, with lower overall wheat prices of US$270-US$280/tonne, almost half the peak of US$500/tonne. We are assuming average utilisation rates of 75%-80% and 10% Ebit margins, translating into 17% and 37% growth in revenue and Ebit to RM1.3 billion and RM128 million in FY10, respectively.
PPB said besides 1973, 2009 was the worst year for its flour business (-19% and -44% year-on-year decline in revenue and Ebit) due to higher wheat prices and collapse of futures prices.
The sweetener will be an expected liberalisation of the flour business in mid-2010, where prices will be based on market forces and volumes for general-purpose flour will rise. PPB is also exploring potential joint ventures with Wilmar to expand its flour business in China and India.
Valuation seems reasonable at 12 times CY11 earnings per share (EPS) (versus 17 times-18 times for IOI and Sime) for a large-cap agriculture-based company, but there is no near-term catalyst.
However, the management has strong business acumen and should make further inroads into the flour business. We prefer Wilmar (buy, target price S$8) as a more liquid direct proxy to growing opportunities in China. - HwangDBS Vickers Research, March 8
This article appeared in The Edge Financial Daily, March 09, 2010.
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