Sime Darby Guthrie Berhad
Thu, 21-Nov-2024 06:51 am
by Steven Chong • Apex Research

Counter

SDG (5285)

Target Price (RM)

4.50

Recommendation

Hold

Summary

  • SDG recorded CNP of RM361.0m (-15.1% qoq, +4.0% yoy) in 3QFY24, bringing 9MFY24 CNP to RM706.0m (+43.8% yoy), which came below ours and consensus expectations at 54% and 51% respectively due to lower-than-expected FFB production coupled with weak downstream margins.

  • We tweak down our CNP forecast for FY24 by -18.4% to RM.1.02bn to account for margin contraction in the downstream segment and keeping our FY25 earnings forecast unchanged.

  • Maintained our HOLD recommendation with unchanged TP of RM4.50 based on forward PE multiple of 21.7x and FY25F EPS of 20.9 sen.

 

Results Review

  • Results review. 3QFY24 posted CNP of RM361.0m (-15.1% qoq and +4.0% yoy) which was lifted by higher CPO and palm kernel average selling prices. CNP was derived after stripping off one-off adjustments of RM405.0m (gains on land sale: -RM390.0m and others: -RM15.0m). Similarly, the Group recorded higher top line of RM5.27bn (+6.1% qoq and +10.3% yoy).

 

  • Results below expectation. The Group’s 9MFY24 CNP of RM706.0m c below ours and consensus expectation, only matching 54% and 51% of the full year CNP forecasts respectively. The variance was attributed to a lower-than-expected FFB production coupled with contraction in downstream margins.

 

  • Operations Highlights. The plantation segment's EBIT rose to RM646m (+18.1% yoy) in 3QFY24, primarily driven by its Malaysia operations. However, operations in Indonesia, Papua New Guinea, and the Solomon Islands experienced a decline due to lower FFB output. During the quarter, the segment benefited from higher CPO ASP (+4.6% yoy) and palm kernel ASP (+42.4% yoy), which more than offset the negative impact of lower FFB yield growth (-6.7% yoy). Elsewhere, the downstream segment registered a lower of EBIT of RM130m (-42.2% yoy) in 3QFY24, mainly dragged by lower margins from its differentiated refineries in European and Asia Pacific.

 

  • Outlook. Looking forward, we expect contribution from plantation segment to accelerate in view of the elevated CPO selling price. However, lower utilisation and margins in the downstream operations should partly mitigate the positive impact. 

 

  • Valuation. We tweak down our CNP forecast for FY24 lower by -18.4% to RM1.02bn to account for margin contraction in the downstream segment and keeping our FY25 earnings forecast unchanged. Maintain HOLD with a target price of RM4.50 based on 21.7x FY25F EPS.

 

  • Risk. EU export ban and regulations, changing weather patterns affect FFB production, taxation and export ban in Indonesia threatens local CPO demand, shortage of labour and rising operational cost. 

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Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

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