PPB Group - Massimo bread rolling out nationwide steadily HOLD

Stock Name: PPB
Company Name: PPB GROUP BHD

Research House: AMMB

Price Call: HOLD

Target Price: 17.45

- Maintain HOLD on PPB Group Bhd, with an unchanged fair valueof RM17.45/share, which is based on a PE of 19.5x on FY12F EPS. 

- In the past five years, PPB's historical PE band ranged froma low of 19.0x to a high 22.1x. Average PE was 20.6x. PPB's 18%-ownedassociate, Wilmar International, is currently trading at 15x FY12F fullydiluted EPS and 13.5x FY13F fully diluted EPS.

- We visited PPB's Massimo bread factory yesterday. We foundthe plant to be clean and modern. Most of the processes are automated and theonly labour-intensive segment is the packing section. 

- The bread factory cost RM120mil to build. We reckon that thebulk of the cost was attributed to the heavy machinery and equipment, some ofwhich were brought in from the US. 

- There are no plans yet to increase the selling price of Massimo'swheat germ bread. We reckon that PPB's strategy is to improve its market sharefirst even though it may result in the erosion of operating margins. Theselling price of Massimo wheat germ is RM2.50 for a 400gm loaf. This is just 10sen more expensive than the white bread.

- PPB has started selling Massimo bread to other markets suchas Ipoh, Penang, Malacca and Seremban. This would allow the group to expand itsmarket penetration beyond the Klang Valley. 

- The group also plans to increase the number of its products.Currently, PPB sells the wheat germ loaf, white bread loaf and cream rolls.There are two types of single cream rolls and two types of double creamrolls. 

- We understand that consumers have responded well to PPB'sbread products. Word of mouth has been instrumental in the acceptance of thebread. PPB has also advertised in newspapers and television to promote the bread.  

- There is no expansion plan yet. Presently, the bread factoryhas the capacity to produce 10,000 loaves per hour and 24,000 cream rolls everyhour. The bread factory encompasses an area of 22,000 sq metres, which is the sizeof two football fields.  

Source: AmeSecurities