Analysts cautious of PPB’s near-term prospects

KUCHING: Analysts are cautious of PPB Group Bhd’s (PPB) near-term prospects as its key segments could see better top-lines but with mixed earnings prospects.

Following PPB’s financial year 2018 (FY18) results briefing, Kenanga Investment Bank Bhd’s research team said it came away feeling cautious of its near-term prospect as its key segments such as grains and agribusiness, consumer products, and film exhibition could see better top-lines but with mixed earnings performance.

It explained: “Sales from the grains & agribusiness segment in FY18 improved with a higher demand from food manufacturers, but suffered from higher wheat prices that inflated production costs.

“While commodity trends are expected to remain volatile, management aims to maintain focus in gaining market share and drive better economies of scale for greater cost savings.

“Earmarked investments of RM401 million into China and Vietnam over four years will bolster its presence in these regions.”

As for PPB’s consumer products segment, Kenanga Research noted that revenue from the consumer segment fell short on weaker demand that could have been dampened by soft economic conditions.

“Additionally, the same abovementioned higher wheat prices could have dragged the segment’s profit. While previous efforts included introducing new products, the group hopes for topline performance to be driven by a higher distributorship profile backed by a larger product profile.

“Furthermore, the commissioning of an upcoming halal- certified frozen food production facility in 2Q19 will open up wider market opportunities,” it added.

Aside from that, Kenanga Research said, its film exhibition segment (Golden Screen Cinemas Sdn Bhd) could continue to enjoy stable margins given its leaner operating structure.

It said, PPB’s film exhibition segment had benefited from better ticket sales, average ticket prices and reception from co-produced movies.

“Going forward, the segment appears poised to expand with the re-opening of refurbished halls of existing cinemas. Additionally, two more location openings (36 locations, year to date) and the planned refurbishment of other high footfall locations could fuel ticket sales,” it added.

The research team also pointed out that up to nine new cinemas are earmarked to be opened by FY22.

“While the former two segments are expected to see earnings risks mainly from higher operating costs, we opine that this segment could continue to enjoy stable margins given its leaner operating structure,” it opined.

Meanwhile, outlook for the environmental engineering & utilities are expected to be driven by a higher order-book of RM320 million and tender-book of circa RM370 million, said the research team.

“We believe this is mainly for the water treatment and sewage systems. For the property division, growth could be muted by the slow take-up rate of the Megah Rise project, which is expected to be completed by 2021,” it added.

Post-meeting, Kenanga Research said it retained its earnings forecast of PPB.