Investment Highlights

• We maintain HOLD on SD Guthrie (SDG) with an unchanged fair value of RM4.55/share, based on FY25F PE of 18x, which is the 5-year average for large-cap planters. We attach a neutral 3-star ESG rating to SDG.

• Although SDG’s earnings were above our estimates, we are keeping our HOLD recommendation. We believe that the group’s downstream earnings could ease in 2HFY24 due to weaker selling prices and competition from Indonesia.

• On an annualised basis, SDG’s 1HFY24 core net profit of RM653mil was 20% above our forecast but 7% below consensus. SDG exceeded our expectations due to stronger- than-expected downstream earnings. We have raised SDG’s FY24E net profit by 20% to account for this.

• SDG’s core net profit soared to RM653mil in 1HFY24 from RM449mil in 1HFY23 on the back of a recovery in FFB production in Malaysia and higher downstream profits.

• SDG’s FFB production rose by 8.2% YoY in 1HFY24. In Malaysia, FFB output expanded by 35% but in Indonesia, FFB slid by 17%. FFB in Papua New Guinea (PNG) declined by 6%. Average CPO price realised was RM3,961/tonne in 1HFY24 vs. RM3,824/tonne in 1HFY23.

• The improvement in FFB yields in Malaysia was underpinned by a more productive workforce. SDG took 3-6 months to train new harvesters last year. SDG’s FFB yields in Indonesia were affected by the lagged impact of 3Q2023’s El Nino while in PNG, SDG was hit by floods in 1QFY24.

• SDG’s plantation EBIT was driven mainly by Malaysia. Malaysian upstream division swung from a loss of RM46mil in 1HFY23 to a profit of RM324mil in 1HFY24. However, Indonesian upstream dived by 28.7% to RM191mil while PNG upstream slid by 6.5% to RM174mil.

• Downstream EBIT (bulk, differentiated products and trading) surged by 90.8% YoY to RM351mil in 1HFY24 on the back of higher sales volume and processing margins in Europe and Asia Pacific. EBIT margin rose to 4.2% in 1HFY24 from 2.5% in 1HFY23.

• Comparing 2QFY24 against 1QFY24, SDG’s downstream EBIT climbed by 60% to RM216mil on the back of improved demand for differentiated products and refining margins. EBIT margin inched up to 4.9% in 2QFY24 from 3.4% in 1QFY24.

• SDG is currently trading at a FY25F PE of 17.

Source: AmInvest Research - 22 Aug 2024