"Wilmar" effect on PPB recent share price dip ?

KUALA LUMPUR:

PPB Group saw its 18.34% owned Wilmar’s net profit for 3QFY10 ended Sept 30 dip by 60.3% to US$259.49 million (RM801.82 million) from US$652.95 million a year ago.

The weakness in the 3Q numbers was primarily due to the loss of US$37.1 million from the oilseed & grains segment against a profit before tax (PBT) of US$145.8 million in 2Q.

The decline in net profit was largely due to weaker performance in its oilseeds and grains segment and the absence of exceptional gain.

In FY09, Wilmar booked in gains from the sales of new shares in Wilmar China.

“Wilmar is the core earnings driver of PPB, contributing to about 75% of the group’s net profit for the past two years,” said an analyst with HwangDBS Vickers Research.
The concerns over lower earnings sparked some selling on PPB Group’s shares yesterday. Its share price was down 4.44% or 86 sen to RM18.50.
Trading at a forward price-to-earnings ratio of 14.61 times, the counter recently rocketed to-record high of RM19.58.
HwangDBS expects the conglomerate to register a net profit of RM2.05 billion for FY10 ending Dec 31, which is an increase of 26% from its actual net profit of RM1.63 billion registered in FY2009.

Another analyst with a foreign stockbroking group echoes this view, saying there was no way the remaining 15% earnings contributors could offset the loss of revenue generated by the world’s largest plantation firm to PPB.

In FY09, Wilmar contributed RM1.21 billion or 74% of PPB’s total net profit of RM1.63 billion. This marks a 35.5% increase in profit contribution to PPB.

Nevertheless, the analyst said PPB’s accumulated earnings could still remain relatively strong on a nine-month quarterly basis mainly due to the sale of its sugar businesses that was completed in January 2010.
PPB made a gain of RM1.17 billion from the sale of its sugar business to Felda Global Ventures Holdings Sdn Bhd.

PPB also sold its 50% stake in Kilang Gula Felda Perlis Sdn Bhd (KGFP) for RM26.31 million and its 5,797ha sugar cane plantation in Chuping, Perlis, for RM45 million.

It is worth noting that revenue generated from PPB Group’s other continuing operations (excluding Wilmar and the sugar businesses) amounting to RM2.01 billion for FY2009 was down 19% from a year earlier.

The decrease was mainly due to lower revenue registered by the flour and feed milling divisions in tandem with the decline in soft commodities in 2009, environmental engineering, chemicals trading and manufacturing divisions. PPB’s other divisions include property investment and development, livestock farming and film exhibition and trading.

For the six months ended June 30, PPB’s revenue of RM1.08 billion was about 4% higher than the RM1.04 billion in the same period a year ago.

The increase was mainly due to higher revenue achieved by the film exhibition and distribution division, and the chemicals trading and manufacturing businesses. Both of these divisions contributed about 17% of PPB’s total revenue.

At the profit before tax level, PPB posted a slight increase for 1HFY10 to RM628.49 million from RM626.08 million a year earlier.

The flour and feed milling division contributed higher profit due to an increase in sales volume and better margins, while film exhibition and distribution generated higher profit arising mainly from increased admissions.

CIMB Research downgraded Willmar’s stock to “neutral” from “outperform” and cut its net profit forecast for FY10 by 14% and FY11-12 forecast by 4% to 5% to account for lower crushing profit margins.

“The lack of assurance is only partially mitigated by improving prospects for its palm-refining margins, plantation earnings (from rising CPO prices) and earnings contributions from Sucrogen,” commented CIMB.

However, OSK Research, which recommends its clients to buy in dip, reckons the earnings contraction is a temporary setback.
“We are not overly concerned given Wilmar’s good track record although the results warrant a cut in our earnings forecast for FY10 to factor in weaker performance in the oilseed and grains segment, but cushioned by stronger CPO price,” said OSK Research in a note yesterday.
( Source : Theedge )