Better results from addition of Wilmar to stable
While diversified PPB Group Bhd has not been spared by the downtrend in crude palm oil (CPO) prices, it is still worth keeping an eye on as the company is expected to reap the benefits of having Asia's leading agribusiness group, Wilmar International Ltd, in its stable.
PPB — controlled by tycoon Robert Kuok — had already seen a boost in earnings following the incorporation of Wilmar's earnings, and does not discount the possibility of raising its stake in the Singapore-listed associate company.
Wilmar, which had fallen some 48.2% year to date to S$2.79 on Dec 31, 2008, gives PPB a good opportunity to increase its stake. PPB, which is favoured by investors for its sound management and consistent dividend payout, saw its share price decline 11.7% year to date to RM9.30 on Dec 31. It paid out a dividend of 30 sen a share in FY2007 versus 20 sen the previous year. For the nine months to Sept 30, 2008, the company has proposed a dividend of 67 sen a share.
PPB's 18.3% interest in Wilmar, which has a market capitalisation of about RM43 billion, is valued at about RM7.9 billion. After stripping the RM7.9 billion out of PPB's market capitalisation of RM11 billion, the rest of PPB's business, which includes its flour and sugar-processing operations, is only valued at RM3.1 billion.
Analysts are generally positive on Wilmar's earnings, which are expected to account for some 78% of PPB's net profit. In 3QFY2008, Wilmar's earnings were up 147% to US$483 million, mainly due to the higher sales volume and improved margins of its merchandising and processing business. It also generated some US$1.6 billion in operating cash flow.
Meanwhile, PPB posted a net profit of RM923.2 million for the nine months ended Sept 30, 2008, compared with RM6.9 billion a year earlier, while revenue rose to RM2.6 billion from RM2.2 billion. Note that earnings in 2007 were boosted by one-off gains from the disposal of assets to Wilmar under a corporate exercise.
PPB's cash flow rose to RM175.1 million as at Sept 30, 2008, from RM75.7 million a year ago.
Going forward, PPB expects its overall results in 2009 to better last year's performance due to higher contributions from Wilmar, despite the current global economic crisis that has created volatility and uncertainty in the business environment.
