Sime Darby Guthrie Bhd - Above Expectations; Output Momentum Intact
Fri, 08-Aug-2025 07:46 am
by Steven Chong • Apex Research

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SDG (5285)

Target Price (RM)

5.500

Recommendation

Buy

  • SDG’s 6MFY25 CNP rose 57.3% yoy to RM1029.0m. The result was above expectations, accounting for 58.8% and 59.4% of ours and consensus expectations respectively.

  • SDG expects stronger 3QFY25 FFB output and lower unit costs in 2HFY25. Labour costs will rise with the October 2025 EPF mandate, but its lower foreign worker reliance and greater mechanisation efforts should help mitigate potential impact from the upcoming Multi-Tier Levy on foreign workers.

  • Maintain BUY call with a higher TP of RM5.50 (previously RM5.20) after rolling forward valuation base year to FY26. The revised TP is based on a 3-year average forward PER of 20.4x (revised from 20.6x to reflect the latest PE trend), applied to FY26F EPS of 26.9 sen.

 

Results above expectations. 6MFY25 CNP of RM1029.0m came in above expectations, accounting for 58.8% and 59.4% of ours and consensus forecasts respectively. The variance against our forecast came largely from better-than-expected output and lower-than-expected costs. 

 

YoY. 2QFY25 CNP rose 12.7% yoy to RM479.0m, driven by higher realised prices for CPO (+2.9% yoy to RM4,146/mt) and PK (+49.9% yoy to RM3,247/mt), along with stronger FFB output. The upstream segment delivered a robust performance (EBIT: +55.7% yoy to RM660.0m), offsetting ongoing weakness in the downstream segment (EBIT: -44.0% yoy to RM424.0m), particularly in Europe and Asia Pacific, where elevated feedstock price and soft demand continued to pressure margins. Quarterly revenue grew 4.1% yoy to RM5.2bn.

 

QoQ. CNP declined 12.9% qoq, primarily due to lower average realised prices for CPO (-9.4% qoq) and PK (-2.8% qoq). However, the impact was partly mitigated by a 14.0% qoq increase in FFB production, supported by better OER. Downstream performance rebounded (+65.8% qoq) from a weak 1QFY25 due to better demand for differentiated and bulk products in Asia Pacific. Meanwhile, quarterly revenue increased 7.3% qoq.

 

Outlook. FFB production is projected to strengthen in 3QFY25, supported by improved estate productivity and favourable weather conditions. Management is maintaining its FY25 production cost guidance at c.RM2,500/mt (1HFY25: RM2,600/mt), expecting further reductions in 2HFY25 on the back of higher output and lower fertiliser application. That said, labour costs are set to rise by c.RM9m p.a. following the implementation of the mandatory 2% EPF contribution for foreign workers in October 2025. While details of the Multi-Tier Levy on foreign workers (MTL) are still pending, SDG appears well-positioned to manage the impact, supported by its lower reliance on foreign labour (70% vs peers’ c.85–90%) and ongoing mechanisation initiatives.

 

Earnings Revision. We have raised our FY25F earnings forecast by 8.2%, mainly to reflect the stronger harvest expectations, driven by a 2.6% upward revision to our FFB output assumption and lowering costs estimates.

 

Valuation. We maintain our BUY call with a higher target price of RM5.50 (previously RM5.20) after rolling forward the valuation base year to FY26. The revised TP is based on the 3-year average forward PER of 20.4x (revised from 20.6x to reflect the latest PE trend), applied to FY26F EPS of 26.9 sen. We continue to apply a 0% ESG premium/discount, in line with the Group’s three-star ESG rating. 

 

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

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