Why You Should Take A Look At PPB Group Berhad

How did Robert Kuok, presently the richest man in Malaysia, earned his nickname, ‘The Sugar King’?

Here’s the story. Since 1952, Robert Kuok had began to acquire sugar plantations in Perlis through Kuok Brothers Sdn Bhd. Subsequently, Robert has established the Malayan Sugar Manufacturing Company (MSM) in 1959 and Perlis Plantations Bhd in 1968. Towards the end of the 1960s, Robert was controlling more than 10% of global sugar supply and thus, meriting his nickname, ‘The Sugar King’.

In 1972, Perlis Plantations Bhd was listed on the Kuala Lumpur Stock Exchange (KLSE). Since then, it has expanded and diversified into a wide range of businesses. In 2000, Perlis Plantations Bhd has changed its listing name to PPB Group Bhd (KLSE:PPB). As I write (17 September 2017), PPB Group Bhd is a matured conglomerate worth RM 19.9 Billion.

Stock Information

1

Ticker Symbol: KLSE:PPB / KLSE: 4065

Market Capitalization: RM 19.9 Billion (17 September 2017)

Share Price: RM 16.76 (17 September 2017)

Sector: Consumer

Syariah Compliant: Yes

The Business

At core, PPB derives bulk of its profits from four different business segments. They include:

  1. Wilmar International Ltd

    Presently, PPB Group Bhd is a substantial shareholder of Wilmar International Ltd (Wilmar) with 18.6% shareholdings. Listed on the SGX, Wilmar is among the largest agricultural-based conglomerates in Asia with three main business divisions: Tropical Oils (Palm Oil), Oilseeds and Grains, and Sugar.

    In 2016, PPB has recognized RM 851.9 Million in profits from Wilmar. Thus, Wilmar is currently the largest income contributor to PPB. As I write, the market value of PPB Group Bhd’s shareholdings in Wilmar stands at RM 12.0 Billion (based on current exchange rate of RM 3.12 per S$ 1)

  2. Grains & Agribusiness

    This division consists of grain trading, livestock farming, flour and animal feed milling. Let’s start with flour milling. PPB owns 80% interest in the FFM Group. The FFM Group has 9 flour mills with total milling capacity of 6,270 MT per day. Also, the FFM Group has 20% interest in 9 associates in China with a combined flour milling capacity of 12,550 MT per day.
    In addition, PPB owns 5 feed mills with milling capacity of 145 MT per hour, a layer farm, and two breeder farms. The layer farm is capable of producing 20 million eggs per month while the two breeder farms are capable of producing 3.25 million day-old-chicks (DOC) per month. Combined, this division has contributed RM 267.2 Million in segment profits in 2016. It is the second largest income contributor to PPB. 

  3. Film Exhibitions

    PPB owns 100% interest in Golden Screen Cinemas Sdn Bhd (GSC). It is the largest film exhibitor in Malaysia with 305 screens across 33 different locations nationwide. It also has 40% interest in Galaxy Studio Joint Stock Company which operates the Galaxy brands of cinemas in Vietnam. In 2016, this division has contributed RM 59.1 Million in segment profits. Thus, it is the third largest income contributor to PPB.

  4. Consumer Products

    This division is involved in marketing and distribution of fast-moving-consumer-goods (FMCG) such as packaged flour, bakery products, edible oil, frozen food, canned food, eggs, and a variety of beverage products to supermarkets, retail outlets and neighbourhood stores in Malaysia. In 2016, this division has contributed RM 22.0 Million in segment profits. It is the fourth largest income contributor to PPB.

Growth Plans

Here, I’ll exclude Wilmar as I’ve written an article on it. Please click ‘Wilmar International Ltd’ for further details. As for PPB’s major subsidiaries, they have revealed several development plans to expand its businesses. They include:

  1. Grains & Agribusiness

    PPB is constructing two new 500 MT per day flour mills. The first mill is at Ba Ria in Vietnam. The second mill is in Pasir Gudang. They are expected to commence operations by 2nd and 4th quarter of 2017 respectively.

  2. Film Exhibitions

    In 2017, PPB is opening 3 new cinemas with 42 new screen in Malaysia. In addition, PPB is targeting to open 6 new cinemas with 37 screens and a 9-screen cinema in Cambodia.

  3. Consumer Products
    PPB has secured distribution rights from Reckitt Benckiser Malaysia Sdn Bhd for Dettol, Strepsils, Durex, Gaviscon, Harpic, Vanish, Optrex, and Shieldtox in Northern Malaysia (Penang, Perak, Kedah and Perlis).

Risks

PPB has identified several risks to be managed to ensure continuation of its long-term success. They are:

  1. Over-Reliance on Certain Income Streams

    Despite being a conglomerate, to a large extent, PPB relies heavily on Wilmar International Ltd and the FFM Group to generate income. As such, PPB remains committed to expand its portfolio of other businesses to diversify its sources of income.

  2. Foreign Exchange

    The weakening of Ringgit Malaysia poses several challenges to PPB. This is because most of the raw materials for food processing, film rights purchases, and overseas investments are denominated in foreign currencies. Fortunately, PPB’s investments in Wilmar serves as a natural hedge as Wilmar’s reporting currency is in US Dollars.

Valuation

As I write, PPB is trading at RM 16.76 a share. Based on 2016 earnings per share (EPS) of 88.2 sen, its current P/E Ratio works out to be 19.00. As at 30 June 2017, PPB has reported to have RM 17.66 in net assets a share. Thus, PPB’s current P/B Ratio works out to be 0.95. For the financial year 2016, PPB has paid out 25 sen in dividends per share (DPS). If it maintains its DPS at 25 sen for the financial year 2017, its expected dividend yields would be 1.49% a year.

Investors Relation

For further enquiries on PPB’s Investors Relation matters, you may contact PPB Corporate Services Sdn Bhd (Share Registrar) via:

Telephone – 603-2726 0088

Email – corporateaffairs@ppb.com.my

Major Shareholders

As at 15 March 2017, the substantial shareholders of PPB Group Bhd are:

– Kuok Brothers Sdn Bhd: 50.81%

– Employees Provident Fund Board: 8.11%

– Nai Seng Sdn Bhd: 3.44%

What Do You Think Of  PPB Group Bhd As An Investment? Will You Invest In It? Share Your Views Below

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Ian’s personal capacity. It does not in any way represent those of his employer and other related entities. Ian does not own any companies mentioned.

Ian Tai

Ian Tai is the founder of Bursaking.com.my, a platform that empowers retail investors to build wealth through ownership of fundamentally solid stocks. It is an essential tool that sifts out stocks that grow profits consistently from a database of over 900+ stocks listed mainly in Malaysia. As a Malaysian with close family ties in Singapore, Ian publishes a series of newsletters on how anyone can invest profitability in both countries.

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