The name of Sime Darby Plantation Berhad (SIMEPLT) was officially changed to SD Guthrie Berhad (SDG) on May 28, 2024.

Review

• SD Guthrie Berhad (SDG)’s 1QFY24 results came in below expectations. Excluding all exceptional items, the core net profit surged over 100% YoY to RM229mn, in tandem with a 6.7% increase in revenue. However, the core net profit represented only 15% and 16% of our and consensus' fullyear estimates, respectively, due to lower-than-expected margins.

• Upstream: 1QFY24 PBIT increased by 15.9% YoY to RM255mn, primarily driven by higher FFB production (+8.5% YoY), improved OER, and higher PK prices. For this quarter, the average CPO prices for the quarter were little changed at RM3,887 per tonne, while PK prices surged 8.1% to RM1,794 per tonne. The group experienced higher FFB production growth in Malaysia (+32.7% YoY) to 1.0mn tonnes, mainly attributable to increased workforce. Meanwhile, Indonesia and PNG registered weaker FFB productions of 507k tonnes (-10.4% YoY) and 430k tonnes (-8.9% YoY) respectively for 1QFY24.

• Downstream: 1QFY24 PBIT surged by 77.9% YoY to RM121mn, mainly attributable to increased profits in both Asia and European operations. The rise in demand for Asia Pacific bulk and differentiated refineries, coupled with improved margins in Europe, helped to offset lower contribution from JVs.

• No dividend has been declared for the quarter under review.

Highlights from the Analyst Briefing:

• There are no adjustments to the FFB production growth forecast, which remains in the high single-digit for FY24. Management indicates that this growth will mainly drive from operations in Malaysia, primarily due to the easing of foreign worker shortages, particularly in the harvesting sector.

• Management expects the CPO price will continue be supported at RM4,000/tonne, with the price to hover around this level until the end of the year.

• It is anticipated that the unit production cost will range between RM2,500 and RM2,600/tonne in FY24.

• The group will partner with Permodalan Nasional Bhd (PNB) to develop the Kerian Integrated Green Industrial Park (KIGIP), spanning approximately 1,000 acres (~404 hectares) in Perak. The project will also include a development of additional 660 acres of solar farms, which will be owned and operated by the Group, serving as the primary green energy source for KIGIP.

• Meanwhile, SDG also plans to actively venture into the renewable energy (RE) business in the near future and generate 1 gigawatt of RE in the next two to three years.

• The new refinery plant in Sei Mangkei, Indonesia, is expected to commence operations by 3QFY25, with a total capacity of 450,000 tonnes per year.

Impact

• We adjust our earnings forecast for FY24 to FY26 downwards by 7.9% to 19.4%, respectively, following the lower-than-expected results in 1QFY24 and reduced margins.

Valuation

• The target price has been revised upward to RM4.78 per share (previously RM4.46), based on a CY25 PER of 22x. We have upgraded the stock to BUY from Sell, as we anticipate a sustained earnings improvement in the future.

Source: TA Research - 4 Jun 2024