Kenanga Research expects SD Guthrie's upstream segment to remain robust in FY25.
PETALING JAYA: SD Guthrie Bhd
’s earnings for the second half of its financial year 2025 (2H25) are expected to be backed by some RM500mil in land disposal gains and higher output from its upstream plantation business.
Maybank Investment Bank (Maybank IB) Research, however, expected the plantations giant’s second quarter (2Q25) financial figures to be softer due to lower average selling prices (ASP) of palm oil as a result of bearish supply and demand fundamentals.
SD Guthrie posted a 1Q25 core net profit of RM554mil – up 142% year-on-year (y-o-y) as its upstream earnings outperformance more than offset its underperformance in the downstream segment.
The group’s upstream businesses in Malaysia, Indonesia and Papua New Guinea (PNG) delivered strong earnings growth during the period with pre-tax earnings rising some 184% y-o-y to RM753mil boosted by 18% higher crude palm oil (CPO) ASP while fresh fruit bunch (FFB) output remained flat y-o-y, partly due to flooding at some of its estates in Sarawak, Sabah and Johor.
“We are keeping our 5% higher y-o-y FFB growth assumption for financial year 2025 (FY25) in anticipation of a pick-up in Malaysian output in the coming quarters.
“We understand SD Guthrie has done little forward sales for the rest of FY25 at around RM4,200 a tonne price levels,” the research house stated in a report on the plantation group.
SD Guthrie’s management has maintained its single-digit FFB production growth target for 2025 according to UOB Kay Hian (UOBKH) Research.
Upstream production unit costs are also expected to come in for the full year at RM2,500 per tonne versus the RM2,400 a tonne figure guided to previously.
SD Guthrie’s downstream business contribution in 1Q25 was weaker y-o-y with pre-tax profit coming in 40% lower y-o-y at RM81mil on lower margins in the bulk and differentiated product segments as well as weaker demand in its European and trading operations.
The group ended 1Q25 with net debt of RM7bil or 39% net gearing.
No dividend was declared for the quarter as expected by analysts.
Kenanga Research also expected SD Guthrie upstream segment to remain robust in FY25 with CPO prices to range between RM4,200 and RM4,000 per tonne supported by global demand for edible oils outpacing supply.
It added that although labour cost has risen, overall cost should be manageable for SD Guthrie thanks to improving FFB harvests in Indonesia and PNG, aided by flat to slightly lower fertiliser costs and stronger palm kernel oil prices.
Kenanga Research has maintained its “market perform” call on the counter with a target price (TP) of RM4.65 a share based 1.6 times its price to book value.
“With some of its estates ripe for property development, SD Guthrie is defensive and undervalued from an asset point of view but long-term expansion plans and productivity management strategies would be viewed positively although the timing and actual impact on earnings are less clear,” the research house stated in a company report.
