KUALA LUMPUR: PPB Group Bhd is expected to see improved earnings in the second half of 2021, supported by contributions from its 18.6%-owned associate Wilmar International Ltd and higher profitability in its grains and agribusiness.

       Kenanga Research said in a report yesterday the group’s food products segment is still expected to be impacted by high feedstock prices, although partial mitigation from some selling price adjustments could be possible.

       “Soybean crush margins should improve following China’s hog herd recovery. Meanwhile, Australia’s ongoing sugar crushing season (June to November) and India’s upcoming season (October to March) should lend a boost to second half-year 2021 earnings.

       “That said, a change in strategy from China and/or Australia to combat the growing Delta variant could derail its outlook for the second half of 2021,” it said.

       The research house said it is making no changes to its earnings estimates for now.

       “We maintain ‘market perform’ but with a lower target price of RM19.40 (from RM19.80), based on joint sum-of-parts between PPB and Wilmar.”

       Wilmar reported a core net profit of US$730mil (RM3.09bil) in the first half of 2021, which was a 31% year-on-year increase.

       Kenanga Research said earnings were within expectations.

       “Core net profit rose mainly from stronger feed and industrial products pre-tax profits on better refining margins, which overshadowed low soybean crush volume and margins, as well as plantation and sugar milling pre-tax profits of US$164mil (RM694mil) on higher crude palm oil price.”

       RHB Investment Bank said all segments except food products delivered stronger numbers.

       “The food products segment saw a 13% year-on-year decline in pre-tax profit contribution, due to higher commodity prices and the time-lag in passing on the higher costs to consumers, as well as the lower sales volume of consumer products.

       “This was caused by more people dining out in the second quarter of 2021 compared to stocking up on consumer products during the early days of the Covid-19 pandemic, which drove the high demand in the second quarter of 2020.”

       RHB said Wilmar increased the selling prices of consumer pack products in the first half of 2021, adding however that this was not fully recognised during the period.

       “While we believe earnings from this segment should pick up in the second half of 2021 due to the impact of average selling price increases, we cut forecasts for this division slightly to account for lower volumes.”

       The research house added that the feed and industrial division booked a 29% year-on-year rise in pre-tax profit contributions, as strong refining margins and higher demand from the tropical oils downstream businesses offset the lower soybean crushing volume and higher raw material cost for the oilseed crushing arm.

       “Overall volume for the segment was flattish. Going forward, this division’s performance should improve due to higher commodity prices as well as better soybean crush margins in China,” said RHB.