PPB Group (PPB) and Wilmar International (WIL) have a long history in co-owning FFM Berhad (FFM). FFM’s main business is in flour milling, animal feed and grains trading.
It started milling wheat flour in 1966 and, today, it is the largest flour miller in Malaysia with milling interests in Vietnam, Thailand, China as well as Indonesia. In 2004, the then listed FFM was taken private by PPB.
“PPB then sold 20% of FFM to WIL in 2010. Today, 80% of FFM is still under PPB with WIL continuing to hold the remaining 20%. Note that WIL in turn is an 18.8% associate of PPB,” said Kenanga Research (Kenanga) in the recent Company Update Report.
PK flour mill in Cilegon started operations in the west of Jakarta in 2009. The operations are largely owned by two groups, FFM (51%) and the Samora Group (25%), an Indonesian integrated sugar player with upstream sugar cane plantation operation, refining as well as the distribution of sugar.
PK ended the financial year 31 Dec 2022 with net assets of RM162m and net profit of RM12m. An independent Indonesian valuer attached an indicative value of RM135m for PK.
“The present proposal is for FFM to sell its 51% stake in PK to WIL for RM87.5m thus valuing 100% of PK at RM172m or around 14x historic PER and 1.1x FY22 PBV. As such, the divestment value is not large with neutral impact on PPB,” said Kenanga.
A small disposal gain of RM25m will also be recognised by PPB but moving forward, its effective economic interest in PK will fall from 42.7% to 9.6%. Essentially, the disposal will allow WIL to better operate and consolidate its other wheat and rice flour milling businesses in Indonesia with PK under its control.
Key investment merits for PPB include its strong market position in consumer essentials such as flour, feed, ready-to-eat meals as well as mass consumer entertainment in SE Asia, an integrated exposure into oil palm and sugar, from upstream production to selling branded consumer cooking oils and sugar products in China, SE Asia and India via WIL, strong balance sheet and that earnings should start recovering in FY24F.
Risks to Kenanga’s call include weather impact on edible oil supply, unfavourable commodity prices fluctuations, and production cost inflation.
