The Three Numbers That Disappoint PPB Group Berhad

Formerly known as Perlis Plantation Berhad, PPB Group (KLSE: 4065.KL; KLSE: PPB) is today a MYR19 billion conglomerate.

Its main products are grains and agribusiness. But it is also involved in property, consumer products and environmental engineering. It is also the largest single shareholder in palm oil company Wilmar International (SGX: F34).

PPB did not deliver a particularly high Return on Equity to shareholders last year. At 5.5%, it was around 50% lower than the market average. It means that the company only generated MYR5.50 on every MYR100 of shareholder equity.

The low RoE cannot be pinned on a low Net Income Margin. At 25.9%, it is higher than the 30 company that make up the Kuala Lumpur Composite Index. It implies that PPB delivered MYR25.90 on every MYR100 of sales.

Unfortunately, PPB does not make good use of its assets. That could, perhaps, be due to the nature of its agricultural business. The Asset Turnover of 0.2 suggests that PPB only generated MYR2 of sales for every MYR100 of assets at its disposal.

PPB does make use of debt though, but not excessively. It had Net Liabilities of MYR1.18 billion compared to Net Assets of MYR20.6 billion. That equates to a Leverage Ratio of 1.07, which is only around half the market average.

By sifting out the components of PPB Group Berhad’s Return on Equity, it is easy to see why the company disappoints. Its RoE of 5.5% is the product of a high Net Income Margin of 25.9%; a low Asset Turnover of 0.2 and a very modest Leverage Ratio of 1.07.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.