PPB's 9MFY24 results disappointed both expectations of investment house Kenanga and consensus. Grains & Agribusiess, cinema operations and Wilmar International Limited saw lower earnings QoQ and YoY in 3Q and weaker YoY on 9M basis. However, a 4Q recovery is likely on seasonal uptick and firmer commodity prices.
While the group's cinema business namely, GSC reverted into losses over lack of blockbuster releases, however, the analysts at Kenanga believe the unit could see better earnings in Q4.
Nevertheless, Kenanga said a profit cut is inevitable; hence, FY24-25F core net profits (CNP) have been lowered by 10-5%, respectively. TP is also cut by 6% to RM16.50 but current share price levels suggest a lot of negativities have been priced in, hence the OUTPERFORM call is left unchanged it added.
Stripping out net fair value gains (RM35m), net exchange loss (RM15m) and net disposal gains (RM13m), PPB's 9MFY24 CNP inched up by only 3% to RM821.4m, to account for 62% and 65% of Kenanga and consensus respective full-year forecasts. All operating units saw weaker YoY earnings with only non-recurring or lumpy adjustments helping to lift FY24 CNP slightly ahead (3%) of last year's core PATMI.
3QFY24 CNP fell to RM237m (-19% QoQ, -25% YoY). However, QoQ and YoY contributions from G&A also disappointed as Typhoon Yagi disrupted its Vietnam operations including RM28m damages to inventory while Golden Screen Cinema (GSC) reverted to losses on fewer blockbuster releases, weak box office performance, and ongoing relocation costs. Only Consumer Products and Property saw better QoQ earnings but even so, both saw weaker YoY earn longer-term earnings recovery still looks likely despite day-to-day speed bumps:
Lumina Bedong township to start contributing the soft launch of the 228-acre, RM900m GDV township located just to the north of Sg Petani in Kedah is ongoing, hence, contribution should begin in FY25 and to last around ten years.
Overall the house is cutting its FY24F and FY25F net profit by 10% and 5%, respectively, to reflect weaker YTD earnings.
As for Wilmar, upstream earnings should increase on firm palm oil and also sugar prices over the coming quarters. Meanwhile longer-term demand for Food Products should continue inching up on the growing middle class in China, India, and SE Asia. Likewise, profits for Feed & Industrial Products should pick up on improving demand.
PPB's G&A earnings are expected to grow in the longer term on favourable demographic and income levels nudging demand
forward. Prices of raw input commodity such as wheat and corn are also expected to stay soft and a firmer MYR should further
improve nearer term margins.
GSC's revenue to improve in FY25 on improving consumer spending and more blockbuster releases. Although cinema relocations and closures are still ongoing including recent closure at GSC Citta Mall, the pace should moderate moving forward.
