SDG: Land Monetisation and Strong Upstream Performance Drive Upgraded Outlook
| Report Summary | |
|---|---|
| Investment Bank | AmInvestment Bank |
| TP (Target Price) | RM6.20 (+17.4%) |
| Last Traded | RM5.28 |
| Recommendation | |
AmInvestment Bank has upgraded its rating on SD Guthrie to BUY, raising its target price to RM6.20 per share, citing robust land monetisation efforts and resilient upstream plantation earnings. The new target price implies an upside of 17.4% from its last traded price of RM5.28.
The positive revision comes as the company’s land monetisation exercise progresses well, with one of the proposed disposals already completed within the stipulated timeline. AmInvestment Bank views these gains from landbank disposals as sustainable, having imputed RM500 million in disposal gains into SD Guthrie’s bottom line from FY25F to FY27F. Furthermore, the investment bank has revised its FY26F average Crude Palm Oil (CPO) price assumption upwards to RM4,400 per tonne from RM4,300 per tonne, anticipating support from Indonesia’s B50 biodiesel policy roll-out in 2H2026.
Performance Review
SD Guthrie notably recorded RM399 million in gains from land disposal during 3QFY25, primarily from the sale of 1,195 acres in Negeri Sembilan. Excluding these disposal gains, the company’s 9MFY25 net profit surpassed AmInvestment Bank’s forecast by 7% and consensus estimates by 6%, largely attributed to a higher-than-expected upstream Earnings Before Interest and Taxes (EBIT) margin.
Segmental Performance
The upstream segment demonstrated significant strength, with EBIT climbing 52.8% year-on-year to RM2 billion in 9MFY25. This performance was bolstered by elevated palm product prices, with the average CPO price increasing 8.5% year-on-year to RM4,292 per tonne in 9MFY25. Additionally, lower fertiliser costs, easing by 2-5% year-on-year, contributed to the improved margins. Fresh Fruit Bunch (FFB) production also saw a modest 2% year-on-year increase.
Conversely, the downstream segment faced headwinds, with EBIT declining 24.7% year-on-year to RM359 million in 9MFY25. This was primarily due to weak demand and a compression of EBIT margins in its European operations, which faced stiff competition from South American producers. The downstream EBIT margin consequently narrowed to 2.6% in 9MFY25 from 3.6% in 9MFY24.
Outlook and Valuation
AmInvestment Bank’s valuation is based on an FY26F price-to-earnings (PE) ratio of 18x, which is one standard deviation below the five-year average of 20x for large-cap plantation companies. A discount was applied to account for the subdued outlook of the refining industry, despite resilient earnings from land disposals. Key risks to the outlook include potential drops in CPO prices and a decline in demand for palm products, particularly impacting the downstream division.
