SDG: Earnings Beat Expectations on Strategic Monetisation and Cost Efficiencies, Target Price Raised
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company delivered a robust performance in the first nine months of FY25, achieving over RM2 billion in net profit, primarily driven by significant contributions from the upstream plantation segment. These results comfortably surpassed both TA Securities’ and consensus full-year expectations, accounting for 87% and 83% respectively. This strong showing led to an upward revision of FY25-27F EPS by 12-14%, and a subsequent target price adjustment from RM5.25 to RM5.88. Despite the positive adjustments, TA Securities maintains a “Neutral” recommendation on the stock.
Performance Review
In 3QFY25, revenue climbed 3% to RM5.4 billion, propelled by a surge in sales across the upstream Malaysia (+78% YoY), upstream Indonesia (+63% YoY), and upstream PNG (>100% YoY) segments. Average Crude Palm Oil (CPO) price saw a slight increase, while Fresh Fruit Bunch (FFB) production rose 1% YoY, primarily driven by improved output from Malaysia and PNG. However, downstream sales experienced a 3.7% YoY decline to RM4.6 billion, largely attributed to softer capacity utilisation of 56%.
The core profit significantly surged by 75% YoY to RM886 million. This substantial growth was bolstered by stronger earnings from all units, with the exception of upstream Indonesia, mainly due to a lower Oil Extraction Rate (OER). A key factor underpinning this exceptional performance was the recognition of a RM432 million industrial land sale. Upstream Malaysia’s Profit Before Interest and Tax (PBIT) rose 10% YoY, and upstream PNG doubled its contribution. Downstream earnings also increased by 18.5% YoY, supported by strong performance in the bulk and trading segments, which effectively mitigated margin compression in the differentiated segment.
Challenges and Outlook
Despite the strong 9MFY25 performance, the group anticipates a slight decline in 4Q production, mainly impacted by lower Malaysian output. Fertiliser application in Malaysia faced delays due to heavy rainfall during 3Q. Positively, the company has successfully locked in its remaining CPO production from Peninsular Malaysia at RM4,365 per metric tonne. On a cautionary note, regulatory changes in Indonesia pose a potential confiscation risk for 4,200 hectares of its Minamas landbank, although management remains confident in retaining the asset.
Looking ahead, the group has identified an additional 1,950 acres across Selangor, Negeri Sembilan, and Johor, with potential land sales estimated between RM500 million to RM700 million to be recognized next year, indicating future growth opportunities through strategic land monetisation.
