SD Guthrie: A Comprehensive Financial Analysis

Date of Report: November 21, 2024

Broker Name: Maybank Investment Bank Berhad

Introduction

The latest financial analysis from Maybank Investment Bank Berhad takes an in-depth look at SD Guthrie, formerly known as Sime Darby Plantation. This extensive report covers the company’s performance, financial forecasts, and strategic outlook. With an emphasis on the plantation sector, the report provides a meticulous examination of SD Guthrie’s operational capabilities, financial health, and market position.

3Q24 Performance Overview

SD Guthrie’s third-quarter performance in 2024 demonstrated a mix of challenges and opportunities. The company reported a headline profit after tax and minority interests (PATMI) of MYR766 million, showcasing a 37% year-over-year decline but an 85% quarter-on-quarter increase. This was partly attributed to asset disposal gains and unrealized foreign exchange gains.

Core Earnings Analysis

The core PATMI stood at MYR401 million, reflecting a 9% year-over-year decrease and stable quarter-on-quarter performance. The nine-month cumulative core earnings reached MYR1,027 million, marking a 41% increase from the previous year, fulfilling 72%-74% of the fiscal year 2024 estimates. These figures indicate that higher-than-expected tax expenses impacted SD Guthrie’s profitability, as core earnings could have been higher otherwise.

Upstream Performance

During the third quarter, SD Guthrie’s upstream earnings before interest and taxes (EBIT) improved to MYR646 million, an 18% year-over-year and 52% quarter-on-quarter growth. This was driven by better-than-expected crude palm oil (CPO) and palm kernel (PK) average selling prices (ASPs), which compensated for weaker fresh fruit bunch (FFB) output due to poor harvests in Indonesia and Papua New Guinea. Despite these challenges, the nine-month FFB output increased by 2% year-over-year.

Downstream Performance

SD Guthrie’s downstream segment experienced a challenging quarter, with EBIT declining to MYR126 million, a 40% year-over-year and 42% quarter-on-quarter drop. Despite higher revenue, margins shrank, particularly in the differentiated refineries in Asia Pacific and Europe. However, improved profits from bulk operations in the Asia Pacific region provided some relief.

Future Prospects and 4Q24 Outlook

Looking ahead, SD Guthrie is expected to conclude 2024 on a high note, with promising fourth-quarter earnings. October’s FFB output reached a new monthly high for the year, and recent spikes in CPO and PK ASPs are likely to enhance downstream margins. These factors are anticipated to offset any previous lags in performance up to the nine-month mark.

Share Price and Target

The report maintains a “BUY” recommendation for SD Guthrie, with a 12-month price target of MYR5.20, representing an 8% increase from the current share price of MYR4.90. The company’s robust oil palm planted area and status as the largest certified sustainable palm oil (CSPO) producer reinforce its market position.

Financial Projections

Maybank Investment Bank Berhad provides detailed financial projections for SD Guthrie for the fiscal years ending in December 2024 through 2026. Revenue is expected to grow steadily, with EBITDA and core net profit showing positive trends. The report highlights key metrics such as revenue growth, EBITDA margin, and core earnings per share growth.

Risk Factors

The report outlines several risk factors that could impact SD Guthrie’s performance, including weather anomalies, fluctuating CPO prices, and potential negative policies from import countries. Additionally, geopolitical factors and competing oil prices could pose challenges to the company’s growth trajectory.

Conclusion

Maybank Investment Bank Berhad’s comprehensive analysis of SD Guthrie underscores the company’s potential for growth in the plantation sector. Despite facing certain challenges, the company’s strategic initiatives and market leadership position it for a promising future. Investors are encouraged to consider SD Guthrie as a valuable addition to their portfolios, given the positive outlook and strategic advantages highlighted in the report.