Review

• SD Guthrie Berhad (SDG)’s 3QFY24 results came in above our expectation but within consensus estimate. The variance was primarily attributed to higher-than-expected contributions from the downstream segment.

• Excluding exceptional items, the 3Q24 core net profit rose 4.3% YoY to RM362mn, driven by a 10.3% increase in revenue. Cumulatively, 9MFY24 core net profit grew by 43.8% YoY to RM1.0bn, supported by a 10.8% increase in revenue. The core net profit represented 82% of our full-year estimate and 73% of the consensus forecast.

• Upstream: For 9MFY24, core PBIT rose 39.8% YoY to RM1.3bn, driven by higher FFB production (+2.4% YoY), stronger palm oil prices, and lower production costs. The average CPO price increased by 4.0% YoY to RM3,957/tonne, while PK prices surged by 25.0% to RM2,194/tonne. The group achieved robust FFB production growth in Malaysia, up 23.1% YoY to 2.2mn tonnes, primarily supported by an expanded workforce. In contrast, FFB production in Indonesia and PNG declined to 1,607k tonnes (-20.0% YoY) and 1,291k tonnes (-8.2% YoY), respectively, during 9MFY24.

• Downstream: 9MFY24 PBIT increased by 14.1% YoY to RM476mn, thanks to stronger profits across all segments. The improvement was driven by increased demand for bulk and differentiated refineries in the Asia-Pacific region and better margins in Europe and Oceania, which offset the decline in profit from JVs.

• No dividend was declared for the quarter under review.

Impact

• We adjust our FY24-FY26 earnings projections upward by 2.7%-13.2%, reflecting stronger-than-anticipated contributions from the downstream division and improve margins.

Outlook

• We anticipate a strong 4Q results performance, driven by elevated palm oil prices, which are likely to offset lower production levels.

• Potential upside remains tied to Indonesia's implementation of the B40 biodiesel mandate, reduced palm oil production in Malaysia and Indonesia due to seasonal trends, and the escalating war between Russia and Ukraine, which may drive up oil prices.

• Looking ahead, we expect CPO prices to face downward pressure from bumper soybean harvests in the U.S. and South America, increasing supply in these regions. Additionally, the significant premium of palm oil over other edible oils could erode its market competitiveness, dampening demand and limiting further price upside.

Valuation

• Maintain SDG as Sell with a revised TP of RM4.83 (previously RM4.70), based on CY25 PER of 21x and 3% ESG premium.

Source: TA Research - 21 Nov 2024