Kenanga Research has raised its target price for PPB Group Berhad by 3% to RM13.40 from RM13.00 after the conglomerate delivered a stronger second-quarter performance, although uncertainties surrounding Wilmar International’s operations in Indonesia continue to weigh on its valuation.
PPB’s 2QFY26 core net profit (CNP), after adjusting for a RM32 million fair value gain and RM2 million foreign exchange loss, recovered to RM308 million, rising 24% quarter-on-quarter and 8% year-on-year.
Kenanga believes temporary mark-to-market hedging losses at Wilmar International (WIL), estimated at between RM70 million and RM110 million at PPB’s level in the first quarter, reversed to some extent during 2QFY26.
PPB’s own operations also performed better during the quarter, with improvements particularly evident in its Grains and Agribusiness (G&A) and cinema businesses.
The G&A division’s quarterly profit increased 46% from the preceding quarter and 40% year-on-year.
Golden Screen Cinemas (GSC), meanwhile, returned to profitability, recording a pre-tax profit of RM21.9 million compared with a RM7.3 million loss in 1QFY26. Its profit, however, remained below the corresponding period last year.
The Consumer Products division continued to record a marginal loss of RM100,000 as distribution and marketing expenses remained elevated.
Property was the only business segment to post weaker performances on both a quarter-on-quarter and year-on-year basis.
PPB’s net cash position eased to RM1.36 billion from RM1.49 billion in 1QFY26.
The group declared a first-half dividend of 13 sen per share, slightly ahead of Kenanga’s expectations, prompting the research house to raise its FY26 and FY27 annual dividend forecasts to 45 sen per share from 42 sen previously.
Recovery Continues But Margin Pressure Looms
Kenanga expects PPB’s recovery to continue, although earnings growth in FY26 and FY27 could be more modest than previously anticipated.
A key concern is pressure on margins across PPB and Wilmar’s fast-moving consumer goods (FMCG) food businesses, as selling-price adjustments could lag increases in the cost of grains, edible oils and distribution.
For PPB’s G&A business, Kenanga remains positive on the longer-term outlook, supported by favourable demographics, urbanisation and the expansion of the middle class across Malaysia, Vietnam, Thailand and China.
Near-term conditions are less favourable.
The research house said the Middle East conflict has disrupted shipments of energy and related products such as fertiliser, contributing to higher grain and distribution costs.
Passing these higher costs on to consumers could take time, particularly as households across the region continue to contend with cost-of-living pressures.
Kenanga therefore expects slower demand growth and tighter G&A margins during FY26 and FY27.
GSC Earnings Expected To Improve
GSC’s earnings are expected to gradually improve following years of consolidation and refurbishment after its acquisition of MBO Cinemas, formerly Malaysia’s third-largest cinema chain, in 2021.
The cinema operator’s domestic market share has since exceeded 50%.
While earnings were relatively slow in 1HFY26, Kenanga still expects GSC to register earnings growth over FY26 and FY27, albeit at a slower pace than previously anticipated.
PPB’s property division is also expected to see improving contributions.
Its 228-acre Lumina Bedong township in Sungai Petani, Kedah, which carries an estimated gross development value (GDV) of RM900 million, has started contributing through Phase 1A, with another launch planned.
The group is also planning a low-density condominium development on a four-acre site in Kwasa Damansara, Selangor.
Earnings from PPB’s five shopping malls and property development operations are expected to increase through FY26 and FY27, although their overall contribution to the group will remain relatively small.
The Consumer Products division, meanwhile, is expected to continue facing headwinds through 2HFY26 and FY27 as elevated marketing and distribution costs persist.
Indonesia Uncertainty Weighs On Wilmar
A key risk highlighted by Kenanga is the uncertainty surrounding Wilmar in Indonesia.
The research house cited a May 26 report by Singapore’s Business Times that Wilmar was among companies Indonesian authorities were looking into over possible transfer-pricing practices.
Wilmar subsequently announced on May 28 that it had not received official notification of the reported probe.
Kenanga noted that Wilmar’s Indonesian oil palm operations account for approximately 10% of its annual earnings and 5% of its net assets.
Given the uncertainty, Kenanga has applied an additional 10% discount to PPB’s target price, which it said would be reassessed as more information becomes available.
The issue is particularly relevant to PPB as Wilmar contributes an estimated 65% to 75% of the group’s annual earnings.
FY26 Earnings Forecast Cut
Kenanga trimmed its FY26 forecast core earnings per share (CEPS) by 5% to 103.3 sen from 109.2 sen, mainly reflecting expectations of slower growth and tighter margins as selling-price increases lag rising raw-material costs.
However, it raised its FY27 CEPS forecast by 2% to 116.2 sen from 114.4 sen.
For valuation, Kenanga applied a target price-to-earnings ratio of 16 times to PPB’s FY27 forecast CEPS of 116.2 sen, resulting in a base valuation of RM18.60 per share.
It then applied a 20% holding-company discount, reducing the valuation to RM14.90, followed by the additional 10% discount for uncertainties surrounding Wilmar in Indonesia to arrive at its RM13.40 target price.
Kenanga said it remained positive on PPB’s longer-term prospects despite potential volatility from commodity trading positions undertaken by Wilmar and PPB’s G&A business.
The integrated business model spanning upstream agriculture, refining, processing and FMCG brands has proven resilient, while its underlying consumer markets continue to expand across Asia.
Wilmar has significant FMCG exposure in China and India, while PPB’s operations are more concentrated in Southeast Asia.
With PPB trading well below book value, at a prospective price-to-earnings ratio of below 10 times and offering a gross dividend yield of around 4%, Kenanga believes the stock continues to offer attractive long-term upside.
Key downside risks include adverse weather affecting commodity supply and prices, regulatory changes affecting essential-goods pricing and higher production costs.
