2QFY25 Results Review: Sustained Earnings Momentum

Maintain BUY with unchanged TP of RM5.43. We are maintaining our BUY call with an unchanged TP of RM5.43 based on FY25F EPS of 24.7sen pegged to a PER of 22x, slightly above 5-year historical average mean. We remain optimistic with its upstream subsegment where recovery in Group’s FFB yield projected to reach 19.63Mt/ha level in FY25 (back to pre-pandemic level), supported by the intensive rehabilitation efforts undertaken for the past couple of years in Malaysia area.

Additionally, regulatory risks in Indonesia have limited impact, as the affected hectarage accounts for less than 3% of the group’s total area. Meanwhile, the new 19% US tariffs are expected to have minimal effect, as only 2% of the company’s exports are directed to the US. The company remains insulated due to strong supply chain routes from PNG and the UK.

Sustained earnings momentum. After adjusting El’s of RM26.0m, 2QFY25 Core PATAMI surged by +12.4%yoy to RM479.0m. The good results attributable by strong upstream contribution (+55.7%yoy), due to higher CPO price PK prices realised, decent group’s FFB output (+4.1% yoy) and eased in cost of production. Nonetheless, downstream earnings fell by -40% as narrowed refining margins remain a drag to the downstream business due to high feedstock cost exacerbated by weak market demand.

Upstream. The 2QFY25 group’s upstream bottom-line remained healthy, holding steady at RM660.0m (+55.7%yoy), driven by higher profit contributions across the 3 countries. Operationally, Malaysia’s FFB production inched by +2.0%yoy, as estates productivity improved due to the lower rainfall. While in Indonesia, growth came from the expansion of mature areas, now making up 31% of total planted land. Meanwhile, operations in PNG benefited from favourable weather and smoother field conditions. The group’s average CPO and PK realised prices increased to RM4,146/Mt (+2.9%yoy) and RM3,247/Mt (+49.9%yoy), respectively. Meanwhile, the all-in cost of production, estimated to down -7.4%yoy, attributed to the higher OER and oil yield.

Downstream. The downstream’s profit settled lower at RM126.0m (-41.7%yoy) in the quarter due to lower profits reported by the Europe operations and the Asia Pacific bulk operations, on the back of margin compression and weaker market demand.

Earnings. We are maintaining our earnings estimate at this juncture, as the results came in broadly within ours circa 60% – taking into account the anticipated weaker performance in 2H25 onwards. Earnings for 2HFY25 are expected to taper off as CPO prices are likely to normalise during the peak production period, following the increase in closing stockpiles.

SD Guthrie: 2QFY25 Results Summary

Source: Company, MIDFR

SD Guthrie: Segmental Breakdown & Operational Stats.

Source: Company, MIDFR

FINANCIAL SUMMARY

Source: Bloomberg, MIDFR

DISCLOSURES AND DISCLAIMER

This report has been prepared by MBSB Investment Bank Berhad (formerly known as MIDF AMANAH INVESTMENT BANK BERHAD) 197501002077 (24878-Χ).

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MBSB INVESTMENT BANK (formerly known MIDF INVESTMENT BANK): GUIDE TO RECOMMENDATIONS

STOCK RECOMMENDATIONS

BUY Total return is expected to be >10% over the next 12 months.

TRADING BUY The stock price is expected to rise by >10% within 3 months after a Trading Buy rating has been assigned due to positive news flow.

NEUTRAL Total return is expected to be between -10% and +10% over the next 12 months.

SELL Total return is expected to be < -10% over the next 12 months.

TRADING SELL The stock price is expected to fall by >10% within 3 months after a Trading Sell rating has been assigned due to negative news flow.

SECTOR RECOMMENDATIONS

POSITIVE The sector is expected to outperform the overall market over the next 12 months.

NEUTRAL The sector is to perform in line with the overall market over the next 12 months.

NEGATIVE The sector is expected to underperform the overall market over the next 12 months.

ESG RECOMMENDATIONS* – source Bursa Malaysia and FTSE Russell

☆☆☆☆ Top 25% by ESG Ratings amongst PLCs in FBM EMAS that have been assessed by FTSE Russell

☆☆☆ Top 26-50% by ESG Ratings amongst PLCs in FBM EMAS that have been assessed by FTSE Russell

☆☆ Top 51%- 75% by ESG Ratings amongst PLCs in FBM EMAS that have been assessed by FTSE Russell

☆ Bottom 25% by ESG Ratings amongst PLCs in FBM EMAS that have been assessed by FTSE Russell

* ESG Ratings of PLCs in FBM EMAS that have been assessed by FTSE Russell in accordance with FTSE Russell ESG Ratings Methodology