Stripping out all the non-core items, SD Guthrie saw its 9MFY24 core profit surge 75.7% YoY to RM1bn on the back of stronger earnings from the upstream Malaysia and downstream segments. The results, which made up 66% and 74% of our and the consensus full-year expectations, were broadly in line, as we expect stronger earnings in the final quarter on the back of a surge in CPO prices. Maintain Neutral with an unchanged TP of RM4.82 based on 20x FY25 EPS. No dividend was declared for the quarter.

• 3QFY24 revenue (QoQ: +6.1%, YoY: +10.3%). The group's sales improved by 10.3% YoY to RM5.2bn, driven by the downstream segment (+13.4% YoY). 3QFY24 average CPO price enhanced from RM3,777/mt to RM3,949/mt (9MFY24: RM3,957/mt, +4% YoY) while 3QFY24 FFB production slipped 7% YoY to 2.28m mt (9MFY24: 6.46m mt, +2% YoY), mainly driven by higher production from Malaysia (+7% YoY), partially offset by a steep decline in Indonesia (-25% YoY) and PNG (-12% YoY) due to lagged effect of dry weather conditions from the El Nino phenomenon. OER slipped from 21.12% to 20.85% due to lower FFB processed. Meanwhile, downstream sales rose 13.4% YoY to RM4.8bn, led by higher sales from the bulk segment in the Asian Pacific region.
• Core earnings rose to RM407m. Excluding non-core items, the group's core earnings grew from RM315m to RM407m, mainly on the back of stronger earnings from upstream Malaysia (+63% YoY) on lower production cost. On the other hand, upstream Indonesia and upstream PNG/SI earnings fell 6.1% and 29.9%, respectively, due to higher production costs. Downstream earnings tumbled 40% YoY to RM126m, dampened by weaker performance by the differentiated refineries in Asia Pacific and European regions as well as a lower share of profit from a joint-venture.
• Prospects. Management expects CPO prices to remain at current levels, underpinned by tighter supply in the global palm oil markets due to Indonesia's prolonged adverse weather conditions and the higher biodiesel mandate in Indonesia. Meanwhile, it also anticipates strong performance from its European downstream operations to continue. Overall, we expect a strong finish in the final quarter, driven by the current strong CPO prices.

Source: PublicInvest Research - 21 Nov 2024