Monday, July 28, 2008

PPB(Perlis Plantation Berhad) and WIlmar, Part II

PPB group is a conglomerate involves in sugar refining, grains trading, flour and feed milling and film exhibition and distributions. PPB group supplies 50% of domestic sugar requirements. It is also a market leader supplies more than 40% of Malaysian flour requirements. In the leisure sector, it has 41 screens in 21 locations nationwide. In June 2007, PPB disposed its oil palm businesses to Wilmar International for a 18.3% stake.

Outstanding Shares : 1,185 million
Market Capitalization : RM 11,020 mln ( RM 9.30 )
2007 EPS (exclude one-off gain from disposal of PPB Oil Berhad) : RM 0.54
2007 PE : 17 times

The recent crude oil price corrections caused Wilmar International share price plunged pretty severely, last Friday share price was S $ 4.06, fallen almost 28% from the top. PPB group share has been under-pressure as well even though it has been holding relatively well around RM $ 11.00 during the period of local political uncertainties, the share price fallen by 15% recently. I'm not sure whether the share price will fall further when crude oil fall to US $ 100, most may mistakenly treating PPB = Wilmar = palm oil plantation = crude oil, at RM 9.30, I find it attractive based on the following prospects/assessments:

i. Sugar refining capacity expansion. Capex RM 104 million.

ii. Wheat flour capacity expansion in Northern Malaysia – 360 mt/day by Q4 2008. Will build 220 mt/day plant in Kota Kinabalu starting Q2 2008 and 1,000 mt/day in Indonesia to be operational by 2009. Capacity will increase from 2,750 mt/day to 4,330 mt/day.

iii. Contribution from integrated agribusiness – Wilmar International – which primarily deriving its profit from processing lauric palm oil and oil seeds and grains and acre expansion of oil palm plantation over the next 10 years. CIMB Singapore expects Wilmar to generate net profit of US 1 billion. Based on it’s 18.3% interest, this will contribute about RM 600 million to PPB group's 2008 bottom line.

iv. A respected commodity research outfit like Goldman Sachs recently recommended Wilmar International to be a long term core holding. This will lend some weight to long-term growth potential of emerging markets.

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