Introduction to SD Guthrie

SD Guthrie, formerly known as Sime Darby Plantation, stands as a key player in the plantation industry. As the largest oil palm plantation company and Certified Sustainable Palm Oil (CSPO) producer, it commands significant market presence and offers a lucrative investment opportunity with a strong recommendation from Maybank Investment Bank Berhad.

Financial Highlights and Performance Review

SD Guthrie’s third quarter (3Q24) results showcased a compelling financial trajectory, driven by strategic asset disposals and favorable currency fluctuations. The company reported a headline Profit After Tax and Minority Interest (PATMI) of MYR766 million, reflecting a year-over-year (YoY) decline of 37% but an impressive quarter-over-quarter (QoQ) increase of 85%. Notably, gains from asset disposals and unrealized foreign exchange contributed significantly to this outcome.

Adjusted core PATMI stood at MYR401 million, marking a 9% YoY decrease but maintaining stability QoQ. Cumulatively, the 9-month earnings (9M24) reached MYR1,027 million, surpassing YoY performance by 41% and aligning closely with forecasted earnings estimates.

Upstream Operations: A Closer Look

SD Guthrie’s upstream segment experienced mixed results. The 3Q24 upstream Earnings Before Interest and Taxes (EBIT) rose to MYR646 million, a YoY increase of 18% and a QoQ surge of 52%. This growth was largely driven by improved Crude Palm Oil (CPO) and Palm Kernel (PK) Average Selling Prices (ASPs), which compensated for suboptimal Fresh Fruit Bunch (FFB) output, particularly in Indonesia and Papua New Guinea (PNG).

While the upstream performance faced challenges from weaker-than-expected FFB output, the overall 9M24 FFB production managed a modest 2% YoY increase. This result, however, fell short of the projected 4% growth for the fiscal year.

Downstream Operations: Navigating Margin Pressures

The downstream sector faced headwinds in 3Q24, with EBIT declining to MYR126 million, a stark contrast to the previous year’s performance. Despite a 14% YoY revenue increase, shrinking margins in Asia Pacific and European refineries impacted profits. Nonetheless, improved returns from bulk operations in the Asia Pacific region provided some relief.

Future Outlook: Promising Prospects Ahead

Looking ahead, SD Guthrie is poised for a robust fourth-quarter performance, thanks to rising ASPs and increased output. October FFB output set a new monthly high for the year, climbing by 7% month-over-month (MoM). The recent surge in CPO and PK ASPs is expected to bolster downstream margins, further enhancing overall financial performance.

Investment Strategy and Recommendations

Maybank Investment Bank Berhad maintains a “BUY” recommendation for SD Guthrie, with a 12-month price target of MYR5.20. This target reflects an 8% increase from the current share price of MYR4.90. The recommendation is supported by SD Guthrie’s substantial oil palm planted area, leadership in CSPO production, and promising earnings outlook.

Investors are advised to consider potential risks, including weather anomalies, fluctuating CPO prices, and regulatory changes in key markets. However, the company’s strategic positioning and operational strengths offer a compelling case for investment.

Conclusion

SD Guthrie’s financial performance and strategic initiatives underscore its potential as a leading investment choice in the plantation sector. With favorable market conditions and a robust operational framework, the company is well-positioned for sustained growth and profitability. Investors are encouraged to explore the opportunities presented by SD Guthrie, leveraging insights from Maybank Investment Bank Berhad’s comprehensive analysis.