Looking At SD Guthrie’s Long Term Prospects

Various research houses have maintained their BUY calls on SD Guthrie Bhd, citing a strong finish to the financial year 2024, supported by high crude palm oil (CPO) prices and improving fresh fruit bunch (FFB) output. RHB Investment Bank Bhd (RHB Research) has raised its target price (TP) to RM5.65 from RM5.55, MIDF Investment Bank Bhd (MIDF Research) maintained its TP at RM5.43, while CIMB Investment Bank Bhd (CIMB Securities) has kept its TP at RM5.50.

SD Guthrie’s FY24 core earnings exceeded expectations, with RHB Research noting that its results came in at 110% of their full-year estimate and 105% of consensus. CIMB Securities highlighted a 71% year-on-year (YoY) increase in core net profit to RM1.54 billion, driven by stronger palm product prices and lower production costs. The group declared a final dividend of 11.7 sen per share, bringing the full-year dividend to 16.4 sen, reflecting a payout ratio of 60%.

Upstream operations were the key driver of earnings, with CIMB Securities reporting an 81% YoY rise in earnings before interest and tax (EBIT) to RM2.08 billion. Higher CPO and palm kernel (PK) prices contributed to the increase, with 4QFY24’s average CPO selling price rising to RM4,477 per tonne and PK at RM2,966 per tonne. Papua New Guinea recorded the strongest quarterly earnings growth, followed by Indonesia, due to better pricing and higher output. Meanwhile, Malaysian operations faced a decline in earnings, impacted by an 11% drop in FFB output and higher costs.

MIDF Research remains optimistic about SD Guthrie’s upstream segment, citing FFB yields reaching 19 metric tonnes per hectare in FY24 due to rehabilitation efforts in Malaysia. However, Indonesia and Papua New Guinea operations saw production declines of 13.6% and 8.8% YoY, respectively, due to prolonged weather disruptions. For FY25, SD Guthrie expects FFB growth in the single-digit range, with RHB Research raising its forecast to 5.8% from its previous estimate of 3-4%.

Downstream earnings continued to weaken in 4QFY24, with CIMB Securities noting a 44% YoY and 21% quarter-on-quarter (QoQ) decline to RM103 million. Margin pressures in the Asia Pacific region, weak European demand, and government price control regulations contributed to the drop. However, RHB Research pointed out that improved profitability in Asia-Pacific bulk operations provided some offset. SD Guthrie anticipates a modest improvement in refining margins in Indonesia for FY25, though overall sales volumes are expected to remain subdued.

SD Guthrie introduced two new business segments in 4QFY24—renewable energy and industrial development. The renewable energy segment, which includes biogas, biomass, and solar projects, posted a RM4 million loss, while industrial development recorded a RM3 million loss. CIMB Securities noted that land sales from industrial park joint ventures in Johor, Negeri Sembilan, and Perak are expected to contribute from 2QFY25 onwards.

Looking ahead, SD Guthrie expects FY25 unit costs to decline by 6-7% to RM2,400 per tonne, supported by higher output and slightly lower fertiliser costs. However, the group foresees a potential softening in CPO prices after Ramadan, averaging around RM4,000 per tonne or lower due to increased supply from South America. Analysts from all three research houses remain positive on SD Guthrie’s long-term prospects, citing stable valuations and the potential for industrial park monetisation as key catalysts.

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