Introduction to SD Guthrie Bhd

SD Guthrie Bhd (SDG), the largest oil palm plantation company in Malaysia, has emerged as a key player in the consumer staples sector. With a market capitalization of RM33.75 billion, the company is positioned as a significant force in the plantation industry. This report presents an in-depth analysis of SD Guthrie’s financial performance, operational outlook, and strategic initiatives, culminating in a recommendation to upgrade the stock from “Hold” to “Buy.”

4Q24 Results Preview: Stronger Earnings Ahead

SD Guthrie is set to announce its fourth-quarter 2024 results on 27 February 2025, and analysts anticipate a robust performance. The company’s core net profit is expected to increase to RM420-430 million, reflecting a 10% quarter-on-quarter growth, compared to RM381 million in 3Q24. This improvement is primarily driven by higher average selling prices (ASPs) for crude palm oil (CPO) and palm kernel (PK), although upstream production remained relatively flat. Full-year fresh fruit bunch (FFB) output grew marginally by 1% year-on-year.

Operational Insights and Production Trends

Plantation Segment

The plantation segment saw a slight increase in FFB and CPO output, up 0.8% and 3.1% quarter-on-quarter, respectively. However, profitability faced some pressure due to a pick-up in fertilizer usage in 4Q24, as application was behind pace during the first nine months of 2024. Management expects production growth for 2025 to be in the mid-single-digit range, supported by improved workforce availability and completed rehabilitation activities in Malaysian estates. Additionally, the delayed impact of the 2023 El Niño on Indonesian estates is anticipated to ease by 1H25.

Downstream Segment

The downstream segment’s 4Q24 performance remains a mixed bag. While the Asia-Pacific bulk market business is expected to deliver better margins, demand in Europe continues to show resilience. Refining margins in Malaysia stayed decent, although high prices slightly impacted volume demand. Meanwhile, refining margins in Indonesia exhibited less fluctuation compared to earlier in the year.

Key Financial Metrics

SD Guthrie’s financial performance reflects its operational resilience:

• 2024 revenue is projected at RM21.63 billion, a 17.4% year-on-year increase.
• EBITDA is forecasted to rise to RM3.87 billion in 2024 (+18.4% YoY).
• Net profit for 2024 is estimated at RM1.45 billion, with a corresponding EPS of 21.3 sen.
• 2025 earnings are expected to grow by 18% year-on-year, driven by higher CPO prices and FFB production growth.

Strategic Developments and Outlook

European Downstream Expansion

SD Guthrie recently acquired a 48% equity interest in Marvesa Supply Chain Services, a Netherlands-based company specializing in oils and fats for the animal feed and biofuels industries. With a refinery capacity of 300,000 tonnes annually, this RM250 million acquisition strengthens SD Guthrie’s presence in the European market, particularly in light of the European Union Deforestation Regulation.

2025 Projections

CPO prices are expected to average RM4,500/tonne in 2025, up from RM4,200/tonne in 2024. FFB production is anticipated to grow by 4-5% year-on-year. However, the company may face incremental costs of RM40-50 million due to a minimum wage hike in Malaysia and higher palm oil taxation charges.

Environmental, Social, and Governance (ESG) Initiatives

Environmental

SD Guthrie is making strides in reducing its carbon footprint, with plans to build additional biogas plants in Kedah and Negeri Sembilan. The company aims to achieve a 40% carbon reduction by 2030, up from the current 18%.

Social

The US Customs and Border Protection has confirmed that SD Guthrie’s palm oil is free from convict, forced, or indentured labor.

Governance

The company adheres to transparent governance practices, supported by its Anti-Bribery and Anti-Corruption Policy.

Valuation and Recommendation

UOB Kay Hian has upgraded SD Guthrie’s stock from “Hold” to “Buy,” citing the recent decline in share price as an attractive entry point. The target price remains unchanged at RM5.45, based on a 22x 2025F PE, which is slightly below the historical five-year mean.

Conclusion

SD Guthrie Bhd is well-positioned to capitalize on higher CPO prices and its diversified business ventures. With strong fundamentals, promising growth prospects, and proactive ESG initiatives, the company offers a compelling investment opportunity. Investors are encouraged to consider this stock for its potential upside of 13.5% from the current share price of RM4.80.