PPB Group / Robert Kuok

[winston]

vested

Oct 2, 2025

PPB Group – BUY

Stronger 2H25 prospects. While PPB delivered decent 1H25 results – with core earnings up 9% yoy – we expect the positive momentum to sustain with 2H25’s underlying earnings likely to come in even stronger, underpinned by both its core operations alongside associate contributions by Wilmar.

For its core operations (1H25 EBIT up +23% yoy), we expect the positive trajectory for its agribusiness and film segments to persist, driven by stabilising feedstock prices benefitting its agribusiness’ profit margins, coupled with a strong anticipated movie line-up in 2H25 seen boosting its cinema operations.

For Wilmar, notwithstanding its ongoing court case in Indonesia (potential one-off impact to PPB of up to RM580m), underlying operations are set to perform better in 2H25 – both seasonally (2H typically accounts for 60-65% of Wilmar’s earnings) as well as on a yoy basis – led by the associate’s improving business backdrop in China alongside stronger plantation segment earnings contribution.

Current consensus estimates imply that PPB’s 2H25 operating income will rise approximately 20% yoy, and that Wilmar’s 2H25 net profit will rise by 18% yoy.

Attractive valuations with downsides largely priced in. Following its 24% share price decline since mid-May, PPB now trades inexpensively at 9x forward P/E (1.5sd below its 5-year mean of 14.6x) – the cheapest among non-financial KLCI constituents – and at its lowest since the 2008-09 GFC.

Valuations now appear compelling with most of its downside priced-in, in our view, particularly regarding:
a) Wilmar’s legal dispute in Indonesia;
b) Impact of Malaysia’s expanded SST; and more recently
c) MSCI Malaysia exclusion on 26 August.

Wilmar’s potential financial penalty (up to US$729m), under the worst case scenario, is estimated to impact PPB to the tune of RM580m or RM0.42/share, vs PPB’s share price decline of RM3/share since May.

Management has guided for its dividend payouts to remain intact (FY24: 42sen) even if Wilmar were to bear the maximum financial charge, supported by PPB’s net cash position of RM1.7bn as at end-1H25.

As for SST’s impact, PPB’s management estimates the annual cost increment to be manageable at around RM30m.

Another downside risk for the stock is its potential exclusion from the KLCI, with PPB currently placed 34th by market cap in Bursa Malaysia. That said, with 2H25’s improved earnings outlook (expotential financial penalties) seen underpinned by both its core operations as well as Wilmar, we expect the stock to re-rate upwards from its current trough valuations.

Share Price Catalyst
Event:
a) Sequentially stronger earnings contribution by core operations and associates; b) favourable court case outcome in Indonesia for Wilmar; and
c) reduced KLCI exclusion risk on improved market cap ranking.

Timeline: 1-2 quarters.

Source: UOBKH