SDG: Industrial Segment Fuels Strong Earnings Beat, Target Price Raised
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
An investment bank has reiterated its “BUY” recommendation for a prominent plantation and property firm, citing robust financial performance driven by significant contributions from its industrial property segment. The firm’s 9M25 earnings have comfortably exceeded market expectations, accounting for 100-104% of the full-year FY25 estimates. Core earnings for the third quarter of 2025 (3Q25) saw a remarkable surge of 137% year-on-year and 65% quarter-on-quarter. The investment bank has raised its target price to MYR6.95, reflecting a 32% upside potential from the previous MYR6.10, along with an estimated 3% FY26F yield, after factoring in a 4% ESG premium.
Performance Review
The strong financial outperformance was primarily attributed to maiden contributions totalling MYR378 million from the new industrial property segment. This was generated from the sale of 1,195 acres of land designated for industrial park development. Further bolstering profitability were lower-than-expected interest costs and a more favourable effective tax rate. Despite a 5.3% quarter-on-quarter increase in 3Q25 unit costs to MYR2,575 due to higher fertiliser application, the firm anticipates FY25 unit costs to remain stable at MYR2,500/tonne, reflecting ongoing cost efficiencies and prudent management. The average CPO (Crude Palm Oil) selling price also contributed positively, rising 8% year-on-year to MYR4,292 per tonne in 9M25.
Operational Challenges
However, the quarter was not without its operational challenges. Fresh Fruit Bunch (FFB) output in 3Q25 remained flat both quarter-on-quarter and year-on-year. This brought 9M25 output to a modest 2% year-on-year increase, falling slightly below initial estimates of 4.6% for FY25 and the management’s target of 3-5% growth. Consequently, the firm has moderately adjusted its FFB growth target to a range from flattish to a slight increase for the full year. Downstream margins also faced pressure, particularly in European operations, where differentiated refineries experienced weaker margins due to intense competition and subdued demand. This led to the 9M25 PBIT margin declining to 2.7% from 3.7% in 9M24.
Future Outlook and Earnings Revisions
Looking ahead, the investment bank has revised its FY25F-27F earnings forecasts upwards significantly by 35.7%, 39%, and 26.7% respectively. This optimistic adjustment incorporates several factors: an updated, slightly lower FFB output assumption for FY25F-27F, a substantial new c.MYR500 million per annum EBIT contribution from the industrial segment, and higher CPO price assumptions ranging from MYR4,350, MYR4,250, and MYR4,100 (up from previous estimates of MYR4,100, MYR4,000, and MYR4,000 previously). The firm expects stronger 4Q25 performance in Malaysia but anticipates a weaker quarter in Indonesia for FFB output. Overall, the positive outlook on industrial contributions and CPO prices underpins the maintained “BUY” recommendation.
