• Maintain HOLD (TP: RM5.30). SD Guthrie Bhd (SDG) 9MFY24’s core PATAMI of RM1bn exceeded our full year forecast but was inline with consensus, accounting for 83% and 73% respectively. The positive deviation from our forecast was mainly due to better palm products ASPs and lower-than-expected operating costs. The group’s plantation and downstream segments reported strong 9MFY24 results, with revenue and core PBT increased by 11% and 20% YoY to RM14.6bn and RM1.7bn respectively. This growth was driven by higher recurring profits, with the upstream segment benefiting from 2.4% YoY increase in FFB production, strong CPO and PK realised prices, and lower operation costs. We are positive on SDG’s performance in the upcoming quarters, underpinned by anticipated higher CPO prices. Accordingly, we have revised our FY24/FY25 earnings forecast upward to RM1.45bn/RM1.57bn (from RM1.23bn/RM1.19bn), incorporating a higher CPO price assumption of RM4,100/tonne and lower our production costs estimates. We maintain a HOLD call with higher TP of RM5.30 (from RM4.68), based on a P/BV of 1.9x and a BV/share of RM2.81.

• Key highlights. In 3Q24, core PBT rose by 18% QoQ to RM714mn, primarily driven by higher profit contributions from upstream segment, which offset weaker downstream segment. The improvement in upstream profit was mainly attributed to: i) higher FFB production (+4% QoQ), ii) higher PK realized ASP of RM2,450 (+13% QoQ), and iii) a marginal increase in OER to 20.85% (from 20.82%). Cumulatively, 9MFY24 revenue and core PBT jumped by 11% and 20% respectively, contributed by improved profitability in both upstream and downstream segment. Core PBT margin improved by 0.9 ppts to 11.5%, thanks to a dropped in operation costs, particularly lower fertilizer prices.

• Earnings Revision. We have raised our FY24/FY25 earnings forecasts by 18%/30%, after factoring in higher CPO prices assumption of RM4,100/tonne, lower production costs estimate and housekeeping adjustments.

• Outlook. We expect SDG to achieve positive earnings growth in the upcoming quarters, driven by higher upstream contributions from Malaysian estates, elevated CPO prices (averaging RM4,500-RM5,000/MT) until 1Q25, and anticipated lower fertilizer costs. However, the downstream segment to likely to remain challenging due to heightened market competition. Cost pressure in FY25, stemming from the proposed minimum wage hike, are expected to be partly mitigated by continued operational efficiencies.

Source: BIMB Securities Research - 21 Nov 2024