SD Guthrie (SDG) recorded a decent set of 9MFY24 results. Despite this, we are keeping our HOLD recommendation as SDG's FY25F PE is demanding at 21x. Our target price of RM5.00/share is based on a FY26F PE of 20x, which is slightly below the five-year average of 22x for big-cap planters. We applied a discount due to SDG's susceptibility to shortages in labour in Malaysia. We attach a 3-star ESG rating to SDG.

• SDG's 9MFY24 core results (ex-net disposal gains of RM359mil) were 10% above our forecast but within consensus. SDG's results exceeded our expectations due to a stronger-than-expected EBIT plantation margin in Malaysia. We attribute this to efficiency gains and a 20% to 30% drop in fertiliser costs. We have raised SDG's FY24E net profit by 8.6% to account for this.
• Core net profit surged by 75.7% YoY to RM1bil in 9MFY24. This was mainly driven by the upstream and downstream divisions. Both divisions benefited from stronger demand and selling prices.
• Higher palm product prices in 9MFY24. SDG's average CPO price rose to RM3,957/tonne in 9MFY24 from RM3,806/tonne in 9MFY23. FFB production growth was only 2.4% in 9MFY24 as a 23% jump in output in Malaysia was offset by declines of 20% in Indonesia and 8% in Papua New Guinea.
• Downstream division performed well in 9MFY24. The division benefited from higher demand in Asia Pacific and improved margins in Europe. EBIT climbed by 21.4% YoY to RM477mil in 9MFY24. EBIT margin inched up to 3.6% in 9MFY24 from 3.4% in 9MFY23. On a quarterly basis however, downstream EBIT fell by 41.7% to RM126mil in 3QFY24 dragged by lower margins and demand.

Source: AmInvest Research - 21 Nov 2024