SD Guthrie (SDG) is strengthening its European downstream business with a €54m (RM250m) investment for a 48% stake in a processing-cum-logistics arm of a Dutch group which specialises in animal nutrition additives. The investment should fit well with SDG plantation as well as its downstream operations in Europe.

However, impact on earnings is expected to be minimal. Maintain FY24-25F CEPS, TP of RM4.60 and MARKET PERFORM rating.

Marvesa Supply Chain Services B.V. (Marvesa) is part of a 60-year old group, Marvesa Holding B.V.(MHBV) which is involved in trading, processing and distributing oils and fats. Marvesa possesses: (i) a 300k MT refinery in Zwijndrecht which produces oils and fats for industrial scale frying, emulsifiers, bakery and confectionery ingredients such as margarines, dairy products, candles, and milk substitutes, catering to evolving market needs, (ii) a 100k m3 tank farm across Netherland, Spain, Argentina as well as Indonesia, and (iii) expertise in handling and tracking and tracing customised bio-security products along its supply chain to customers in 11 countries. Like SDG, the group is also a longstanding member of RSPO as it is familiar with palm oil though its strength is in soft oils such as soyabean oil.

Strategic stake. We believe SDG is investing Marvesa for several reasons:

• Animal nutrition is a major component of the world's food chain. Total addressable market is estimated by the International Feed Industry Federation (IFIF) at over USD400b, involving over a billion metric tonnes of feed. Major feed markets are North America, Europe as well as Asia. Looking ahead, United Nation's FAO expects global production of animal protein (i.e. meat, fish and dairy production) to grow by between 1-2% a year to the year 2050.
• Traceability is increasingly important among international buyers of oils and fats and Marvesa's expertise in handling, tracking and tracing food related products including the process to obtain regulatory approvals, securing certifications/permits as well as having ready and appropriate infrastructure will prove invaluable to SDG.
• Synergistic growth. Although Marvesa has an Indonesian presence, there is room to grow. SDG is already in Malaysia, Indonesia, Thailand, Papua New Guinea, China, South Africa, UK and the US.

Moreover, SDG's own downstream refining and processing operations in Europe is also based in Zwijndrecht.

Maintain FY24-25F earnings. No guidance was provided as to the valuation SDG paid for Marvesa nor earnings guidance. We suspect the acquisition could be neutral given the RM250m consideration and SDG's own valuation status but even if it is slightly dilutive the overall impact on FY25 forecasts is likely to be minimal (<5%). The investment is small against SDG's RM31b asset base. There is no impact on FY24 as the financial year closed in Dec 2024.

Forecasts. Maintained FY24-25F CNP.

Maintain TP of RM4.60 and MARKET PERFORM. SDG offers defensive land-rich NTA with improving outlook for ROEs and potentially even its own net gearing from recent ventures in industrial property developments. CPO prices are also set to stay firm but a lot of good news has been priced in. SDG is already trading at 1.8x P/BV and 20x forward PER, while the sector trades closer to 15-18x PER and 1.1 P/BV. No ESG premium is adjusted in view of its 3-star scoring, which is in line with sector average. Our TP is based on 1.7x estimated FY24 PBV.

Risks to our call include: (i) weather impact on edible oil supply, (ii) favourable commodity prices fluctuations, and (iii) easing of cost inflation.

Source: Kenanga Research - 4 Feb 2025