Review

• SD Guthrie Berhad (SDG)’s 2QFY24 results came in within expectations. Excluding all exceptional items, the core net profit increased 54.0% YoY to RM425mn supported by 15.3% increase in revenue. 1HFY24 core net profit accounted for 53% and 47% of ours and consensus' full-year estimates, respectively. Both the upstream and downstream divisions reported improved performance compared to last year.

• Cumulatively, 1HFY24 core net profit increased by 82.7% YoY to RM654mn on the back of 11.1% growth in revenue.

• Upstream: For 1HFY24, PBIT increased by 10.3% YoY to RM666mn, mainly due to higher FFB production (+8.2% YoY), increased palm oil prices, and lower production costs. The average CPO prices rose 3.6% YoY to RM3,961/tonne, while PK prices surged 15.5% to RM2,055/tonne. The group saw a significant FFB production growth in Malaysia (+35.3% YoY) to 2.2mn tonnes, largely due to an expanded workforce. In contrast, Indonesia and PNG experienced declines in FFB production at 1,034k tonnes (-16.9% YoY) and PNG at 899k tonnes (-6.3% YoY) respectively for 1HFY24.

• Downstream: 1HFY24 PBIT surged by 80.2% YoY to RM346mn, thanks to stronger profits across all segments. This improvement was driven by increased demand for bulk and differentiated refineries in the Asia-Pacific region and better margins in Europe and Oceania, which offset the decline in profit from JVs.

• The group declared an interim dividend of 4.65sen/share for the quarter, up from 3.25sen/share declared in the same period last year.

Impact

• No change to our earnings forecasts.

Outlook

• We expect the FFB production to increase largely due to improved harvesting activities, following the resolution of labour shortage issues. However, we believe the CPO prices are likely to be affected by bumper soybean harvests in the U.S. and South America. The increase in supply in these regions, soybean in particular, is expected to put downward pressure on the CPO prices.

• Meanwhile, SDG has signed an MOU with TH Properties Sdn. Bhd. to develop a HALMAS-certified Managed Industrial Park on 464 acres in Bukit Pelandok estate, Negeri Sembilan. The project will comply with HALMAS standards established by the Halal Development Corporation Berhad (HDC), a Malaysian government agency. The recently launched 616-acre Techpark 3, with a RM1.4 billion GDV, aims to replicate the success of previous parks, with strong interest expected.

Valuation

• Maintain SDG as HOLD with a TP of RM4.70, based on CY25 PER of 21x.

Source: TA Research - 22 Aug 2024