KUALA LUMPUR (Sept 5): PPB Group Bhd is cautious of potential renewal of geopolitical tension between Ukraine and Russia, along with unpredictable weather conditions that could choke grain and exert impact on the performance of the group’s grains and agribusiness segment for the rest of the year.
PBB’s managing director Lim Soon Huat emphasised that potential supply risks on the downside could increase cost pressures in procuring raw materials for the group.
“Downside supply risks could affect the performance of the group’s grains and agribusiness segment for the rest of the year,” he said at the group’s press & analyst briefing session for the first half of 2023 (1HFY2023) on Tuesday.
Meanwhile, FFM Bhd chief executive officer Jeremy Goon said the group is monitoring the collapse of the grain deal between Russia-Ukraine, aimed at easing global food price rises by enabling Ukraine to export grain from its Black Sea ports. FFM is a 80% subsidiary of PPB and is the largest flour miller in Malaysia.
“We have bought from Russia and Ukraine in the past. We have monitored the grain corridor quite closely in the last year. Fortunately for us, since the grain war, other origins of grain have shown good production,” said Goon.
He said it is vital for the group to seek alternative grain producing countries due to difficulties of getting global insurers to cover grain ships travelling through Black Sea ports.
It was reported that Russia has blockaded Ukrainian ports since its invasion last year, and threatened to treat all vessels as potential military targets.
As of now, FFM has stopped buying grain from Russia and Ukraine, he said, adding that PPB used to source less than 20% of its grain from these two grain staple countries.
PPB’s earnings to continue to be buoyed by Wilmar
Despite the uncertainty in the grains market, PBB group expects better earnings recognition in the second half of the year (2HFY2023), mainly supported by its 18.8%-owned agri-based Wilmar International Ltd, Lim said.
The associate company, which typically contributes about 75% to 80% of PPB’s earnings, took a beating to its (Wilmar’s) earnings in 1HFY2023, due to tougher operating conditions in China.
“There was a sharp reduction in Wilmar’s profitability from [its] China operations in 1HFY2033. In the second half, we believe the operating environment will allow Wilmar to do better.
“In 2HFY2023, we are seeing more stable consumer spending in China and the cost of raw materials to stabilise, which will improve (Wilmar’s) China operational performance,” he said.
Consequently, PPB Group reported a 70.75% drop in its net profit to RM202.81 million for the second quarter ended June 30, 2023 (2QFY2023), from RM693.41 million a year earlier, dragged by lower contribution from its Singapore-listed Wilmar. This was the group’s lowest quarterly earnings since 2QFY2021, when it posted a net profit of RM183.47 million.
PPB’s net profit for 1HFY2023 fell 41.76% to RM580.35 million, from RM996.57 million in the previous January-June period. Cumulative revenue, however, increased 3.78% to RM3 billion, from RM2.89 billion.
On prospects of other segments of PPB’s business, Lim said its consumer products segment is expected to deliver a satisfactory set of results by capitalising on its established nationwide distribution network and integrated warehousing and marketing system, while continuing its efforts to expand its range of products and widen its distribution base.
Its film exhibition and distribution segment, which turned a profit of RM14 million in 1HFY2023 on the back of a 33% and 42% increase in box office collections and admissions for its Malaysian operations, coupled with strong contribution from its Vietnamese operations, is expected to maintain growth, Lim said.
“For the rest of the year, we anticipate the Malaysian cinema industry’s performance to remain resilient with the upcoming line-up of strong movie titles, which should contribute positively to the segment’s performance in 2023,” he added.
However, the recent strikes by actors and writers in Hollywood may cause delays to a number of blockbusters releases, and so PPB is cautiously optimistic about the performance of this segment in 2023, Lim said.
PPB operates 516 screens known as GSC Screen in 55 locations across Malaysia, and 107 screens under the name Galaxy Studio JSC in Vietnam.
Lim also foresees PPB’s property segment to perform satisfactorily, as the new development projects in Kedah and Penang are at their final planning stages.
“Improved mall occupancy and footfall are expected to drive segment revenue in 2023,” he said.
PPB’s shares closed unchanged at RM15.70 at Tuesday’s close, valuing the diversified group at RM22.3 billion.