• Maintain NEUTRAL and MYR4.25 SOP-based TP (6% downside). SD Guthrie’s 1H24 earnings are broadly in line with our and consensus estimates. FY24 earnings should strengthen YoY, on improved CPO prices and lower costs, while earnings from new property developments should make for a longer-term boost. Nevertheless, the stock remains fairly valued – trading at 22x 2025F P/E, at the higher-end of its peer range of 18-22x.

• 1H24 results are broadly in line, at 45-46% of our and consensus FY24F – boosted by a strong QoQ core earnings recovery of +85% in 2Q24. SDG declared an interim DPS of 4.65 sen (1H23: 3.25 sen), ie 51% payout ratio.

• 2QFY24 FFB growth was at +11% QoQ (+7.8% YoY), bringing 1H24 FFB growth to 8.2% YoY. This is slightly higher than management’s FY24F guidance of a mid-single digit and our forecast of +6.6%. In YTD-July, FFB growth slightly moderated to +5.9% YoY. We keep our FY24-26 FFB growth assumptions at 2-7%, pending the company’s results briefing today.

• Upstream margins for all three countries widened QoQ, leading to a 69% YoY jump in upstream EBIT contributions in 1H24. This came on the back of higher FFB output and lower YoY unit costs. For FY24, SDG’s original unit cost guidance is at MYR2,500-2,600/tonne.

• Downstream margin also jumped to 5.3% in 2Q24 (from 3.1% in 1Q24 and 3.2% in 2Q23), bringing 1H24 EBIT margin to 4.2% (from 2.7% in 1H23). This came from stronger profits generated from all regions, driven by higher volume demand for Asia-Pacific refineries, improved margins in Europe and Oceania, and a turnaround to profitability from its JV contributions. We make no changes to our downstream margin assumptions of 3.5-4% for FY24-26F.

• New halal park in Negeri Sembilan. SDG signed an MoU with TH Properties (THP) to develop a Halal Malaysia-certified managed industrial park on 464 acres of land in its Bukit Pelandok estate, Negeri Sembilan. This park is positioned within the Malaysian Vision Valley 2.0 economic corridor and has an estimated market value of >MYR220m. The new industrial park will be an extension of THP’s Techpark 1 and 2 – which are running at full capacity with several local and multinational companies – in Bandar Enstek, which is an international halal hub. THP’s latest 616-acre Techpark 3, with a GDV of MYR1.4bn, was launched in Nov 2023. The first phase, spanning 189 acres, is expected to register a full take-up rate. We believe SDG could book a significant gain-on-disposal, should it hive off the land on top of booking gains from developing the area. However, pending further granularity at its analyst briefing today, we make no changes to our earnings projections.

• Valuation. Our TP includes a 0% ESG premium/discount. SDG is trading at an expensive 22x FY25F P/E, at the higher end of its peer range of 18-22x.

Source: RHB Research - 22 Aug 2024