• Maintain BUY and SOP-based TP of MYR5.75, 17% upside and c.2% yield. SD Guthrie’s 9M24 earnings came in below our expectations. 4Q24F should see healthier earnings on the back of stronger CPO prices and improving downstream margin, while new property development earnings will provide longer term support. We like the stock for its diversification strategy – which we believe will start bearing fruit from FY25. Valuation remains reasonable, trading at 20.6x 2025F P/E, at the mid-end of its peer range of 18-22x.

• 9M24 core profit was below estimates, at 61% and 67% of our and consensus FY24F. 3Q24 core profit declined 24% QoQ (-8% YoY) to MYR308m driven by weaker downstream margin but cushioned by stronger upstream performance. Excluded from the 3Q24 core profit is a gain on the disposal of MYR390m. The deviation was mainly due to the higher-thanexpected effective tax rate of 27% for 3Q24 and 26% for 9M24 vs our fullyear expectations of 24%.

• 3Q24 FFB output rose 4% QoQ, bringing 9M23 FFB to +2.4% YoY. This is lower than SDG’s FY24 guidance of a mid-single digit and our forecast of 6.6% growth. YTD-October, FFB growth slightly moderated to +1.6% YoY. We keep our FY24-26 FFB growth assumption of 2-7% pending the results briefing today.

• Upstream margins for all three countries saw a robust QoQ improvement in 3Q24, leading to a 40% YoY jump in upstream EBIT contribution in 9M24. This came on the back of higher FFB output as well as higher CPO ASPs realised (+4% YoY).

• Downstream margin declined to 2.7% in 3Q24 (from 5.3% in 2Q24), bringing 9M24 margin to 3.7% (similar in 9M23 at 3.7%). The QoQ decline mainly came from weaker profit generated from lower margin from European regions and lower profitability from its JV contribution. However, this was partially offset by the improved profit from bulk operations in the Asia Pacific region, driven by higher volume demand. We expect the segment to improve driven by stronger margins in Europe and Oceania, and as such, keep our downstream margins of 3.5-4.5% for FY24F-26F unchanged.

• FY24-26F earnings also remain pending further details at the analyst briefing today.

• Keep BUY and SOP-based TP of MYR5.75, which includes a 0% ESG premium/discount. SDG’s diversification strategies are expected to bear fruit in the medium term, boosting earnings and its valuation. The stock is currently trading at 20.6x FY25F P/E, which is at the mid-end of its peer range of 18-22x.

Source: RHB Securities Research - 21 Nov 2024