UOB Kay Hian
Date of Report: Thursday, 03 July 2025

SD Guthrie Bhd: Navigating Softer Q2 Earnings with Growth in Output and New Ventures

Company Overview: Malaysia’s Largest Oil Palm Plantation Group

SD Guthrie Bhd (SDG MK) stands as Malaysia’s largest oil palm plantation company, holding a dominant position in the consumer staples sector. The company boasts a substantial market capitalization of RM32.5 billion (US\$7.69 billion) with 6,915.7 million shares in issue. Major shareholders include Amanah Saham Nasional Bhd (53.3%), Employees Provident Fund Board (9.55%), and Kumpulan Wang Persaraan Diperbadankan (7.4%).

Stock Performance Snapshot

– Share Price: RM4.70 – Target Price: RM4.75 (Revised down from RM5.00) – Upside: +1.1% – 52-week High/Low: RM5.19 / RM4.15 – 3-Month Average Daily Turnover: US\$3.9 million
The stock has experienced mixed performance, with a recent 4.9% gain over the past month but a year-to-date decline of 5.1%. SD Guthrie’s net asset value per share for FY24 is RM2.90, with net debt per share at RM0.72.

Q2 2025 Earnings Preview: Softer Quarter Expected Amid Price Volatility

SD Guthrie’s 2Q25 core net profit is projected to be in the range of RM380 million to RM400 million, about 20% lower quarter-on-quarter from 1Q25’s RM494 million. This decline follows a sharp retracement in crude palm oil (CPO) prices post-1Q25. However, higher fresh fruit bunch (FFB) output—up 13% in April and 4% in May month-on-month, and approximately 5% year-on-year—should partly offset the impact of lower average selling prices.

Production Recovery: Turning the Corner from Previous Disruptions

SD Guthrie is regaining momentum in palm oil production. After a mere 0.7% year-on-year growth in 2024, the company is on track for a stronger 4% output increase in 2025, with the first five months of 2025 already showing a 3.2% year-on-year improvement. The production recovery in 1Q25 was mainly attributed to the Indonesia and Papua New Guinea/Solomon Islands (PNG/SI) estates, while 2Q25 is expected to be led by Malaysian estates that are recovering from prior heavy rainfall disruptions and the tail-end effects of the 2023 El Nino.

Strategic Expansion: Industrial Development and Renewables Drive Medium-Term Growth

SD Guthrie is expanding beyond plantations into industrial development and renewable energy:

• Industrial Parks: In April, SD Guthrie signed a memorandum of understanding with EcoWorld and NS Corporation to develop a 1,200-acre industrial park in Negeri Sembilan (estimated gross development value of RM2.95 billion).
• Carey Island JV: The company has entered into a joint venture with Sime Darby Property to develop up to 2,000 acres in Carey Island, Selangor, into an industrial and logistics hub.
• Renewable Energy: SD Guthrie has bid for a 100MWac solar power plant under the Large Scale Solar 5+ (LSS5) programme, following an earlier unsuccessful bid.

Key Financials: Multi-Year Outlook and Core Metrics

Earnings Revision and Risks: Cost Adjustments Support Upward Revision

UOB Kay Hian has raised earnings forecasts for 2025-2027 by 4-5%, mainly due to lower CPO unit cost assumptions. Management’s recent guidance for 1Q25 places CPO unit cost at RM2,500/tonne, providing some relief despite inflationary pressures and minimum wage adjustments. The earnings revision leads to a new target price of RM4.75, based on a 22x PE multiple (slightly below the five-year historical mean).

Valuation and Recommendation: Favorable Growth Profile but Fair Valuations

The stock is rated HOLD with the revised target price of RM4.75. While SD Guthrie offers a promising production growth profile and medium-term opportunities in new business verticals, current valuations are seen as fair, especially with CPO prices expected to consolidate in the near term.

Environmental, Social, and Governance (ESG) Progress

Environmental Initiatives: – Additional biogas plants are being constructed in Kedah and Negeri Sembilan, progressing towards SD Guthrie’s carbon reduction target of 40% by 2030 (currently at 18%).
Social Milestones:
The US Customs and Border Protection has determined that SD Guthrie’s palm oil is no longer produced with convict, forced, or indentured labor.
Governance Practice:
The company maintains transparent governance and has an Anti-Bribery and Anti-Corruption Policy.

Key Operational Assumptions

– FFB Production Growth: 0.8% (2024), 4.3% (2025F) – CPO Price Assumptions: RM4,180/tonne (2024), RM4,200/tonne (2025F)

Comprehensive Financial Metrics

Profitability:

• EBITDA margin narrows from 20.7% (2024) to 16.5% (2027F)
• Net margin softens from 7.7% (2024) to 6.5% (2027F)
• ROE hovers between 8.1% and 8.9% through 2025-2027

Growth:

• Turnover growth is strong in 2025 (13.7%) but expected to stabilize thereafter
• Net profit shows a 16.3% rise in 2024, followed by a 24.8% decrease in 2025, before stabilizing

Leverage:

• Net debt to equity expected to decline from 22.8% (2024) to 5.4% (2027F)
• Interest cover improves significantly, reaching 158.3x in 2027F

Cash Flow and Capital Management

– Strong operating cash flows, with net inflows projected to grow from RM535 million (2025F) to RM1,279 million (2027F) – Maintenance capex remains steady at RM2,096 million annually – Dividend payments range from RM967 million to RM1,127 million across the forecast period – Cash balances are set to rise from RM1,586 million (end-2024) to RM4,820 million (end-2027F)

Conclusion: Steady Growth with Diversification, but Near-Term Upside Limited

SD Guthrie Bhd is strategically positioned for medium-term growth, leveraging its recovery in plantation output and ventures into industrial development and renewable energy. Investors can expect steady dividends and improving financial health, though near-term share price upside appears limited due to fair valuations and a consolidating CPO price outlook. The company’s ongoing ESG initiatives further strengthen its investment case for those seeking sustainable and responsible growth exposure in the palm oil sector.