SDG’s 1HFY26 CNP fell 10.7% YoY to RM919m, which we deem in line with our FY26F CNP, while also broadly in line with consensus, accounting for 42.3%/45.3% of our/consensus FY26F CNP, respectively.
YoY 1HFY26 Upstream EBIT declined 18.1% while Downstream EBIT increased 21.3% on resilient Bulk and Trading performance. Industrial Development EBIT stands at c.RM689m vs prior year corresponding period of no sale.
Management adopts caution on El Nino risks with drier conditions observed in key operating regions. Bukit Kerayong SPA remains key to beat Industrial Development PATAMI target of RM500-700m.
Taking into account higher CPO price assumptions and lower monthly FFB yield revisions for 1HFY27, we raise our FY26/27 earnings forecast by 2%/10% respectively.
Maintain our BUY call with a higher target price of RM7.70 pegged to a 19.8x P/E multiple to FY27F EPS and 0% ESG factored premium/discount based on three-star ESG rating.
Results met expectations. 1HFY26 CNP arrived at RM919m representing 42.3% and 45.3% of our and consensus estimates respectively. CNP was derived after the following adjustments:
Gains on unrealised FV changes on commodities and forward FX contracts: - RM9m
Gains on disposal of PPE and Assets held for sale: - RM689m
Impairments: - RM2m
Unrealised FX losses: + RM20m
Write down of inventories: + RM25m
Net writes offs: + RM27m
We deem the results in line with our forecasts, given the seasonal plantation trends that typically result in higher output in 2HCY. Furthermore, our forecasts assume higher average ASPs in 2HCY compared with 1HCY.
YoY. 1HFY26 CNP fell 10.7% YoY to RM 919m (1HFY25: RM1,029m) due to weaker Upstream performance which was partially offset by lower Group operating costs and better Downstream contributions. Across the Upstream segment, EBIT performance had fallen 18.1% to RM1,156m (1HFY25: RM1,411m) as a result of lower ASPs and FFB production. Regional EBIT contributions for Malaysia/Indonesia/PNG&SI stood at RM348m/RM373/RM435m representing a change of -39.7%/-0.3%/-5.4% respectively from 1HFY25.
For Downstream, total EBIT had risen 21.3% to RM245m (1HFY25: RM202m) thanks to better performance in Bulk and Trading which was partially offset by softer contributions from Differentiated. Bulk and Trading EBIT contributions stood at RM64m/RM115m (1HFY25: RM10m/RM82m) representing an increase of >100%/40% respectively. The Bulk segment was driven by a recovery in Asia Pacific Bulk operations which saw improved export margins thanks to higher Average Selling Prices (ASPs) and volumes which had offset increases in raw material costs while the Trading segment was supported by favorable market conditions as well as higher margins and volumes. On the other hand, Asia Pacific and Europe Differentiated operations experienced margin compression and lower sales volumes, contributing to a 34% decline to RM97m (1HFY25: RM147m).
QoQ. CNP in 2QFY26 was higher by 38.1% due to higher performance from Upstream and Downstream. Upstream EBIT rose 18.5% to RM627m (1QFY26: RM529m) due to higher CPO and PK ASPs and higher FFB volumes across all regions. Downstream EBIT rose 24.8% to RM136m (1QFY26: RM109m) due to higher margins and volumes thanks to an improved performance in the Asia Pacific Bulk operations. This was partially offset by softer Asia Pacific and Europe Differentiated performance which experienced weaker demand and a higher share of JV losses.
Operational Highlights YoY. Overall, YoY Group Upstream operational performance was little changed. 1HFY26 FFB production for the Group had fallen 2.1%, Group CPO/PK output rose 0.5%/1.3% respectively. Group CPO/PK OER remain stable at 21.27%/4.65% (1HFY25: 21.18%/4.67%).
Across the regions, PNG/SI saw the softest performance with lower numbers across FFB, CPO, and PK due to weather disruptions from Cyclone Maila. Malaysia saw lower FFB numbers due to dryer weather in 1Q although production rebounded in June, in line with seasonal trends. Indonesia saw higher FFB production due to stable weather and improved field productivity.
Management has also guided a CPO price outlook of c.RM4,600 for 2HFY26 and c.RM5,200 in 1QFY27, conditional on El Nino severity. Owing to a bullish outlook, the Group has undertaken lesser exposure in forward sales with a marginal amount locked in for 1QFY27.
El Nino comments. Currently, management has expressed a cautious tone regarding El Nino weather effects and there were expectations for extreme weather from July onwards. For example, Kalimantan estates which represent a majority of Indonesian operations have been reported as dry since July with Indonesian weather forecasters predicting a drag of six months from July. In addition, PNG/SI have been uncharacteristically dry and 1HCY26 water deficits have been experienced in Malaysia.
Industrial Development. The Group remains optimistic on Industrial Development with 1HFY26 PBIT standing at c.RM689m. The Lambak Estate, Kluang, Johor SPA has been completed for a sale consideration of RM82.8m while management hopes to complete the Bukit Kerayong Estate SPA (RM798.3m) within this FY. Lastly, Kelan Estate Kulai SPA (RM418.5m) has been recently executed on the 11th August 2026 although contributions will likely be felt only next FY.
Outlook. Looking ahead, Upstream earnings will be impacted by supply risks from El Nino, the severity of which will determine both ASPs and productivity. As mentioned in our sector report, our expectations are for moderate-strong El Nino conditions to effect lower monthly FFB yields for 1HCY27 by 7%. We also had raised our average CPO prices to RM4,800/RM4,600 in 1H/2HCY27 respectively. Regarding Downstream, guidance has indicated that margin volatility will remain albeit with expectations of resilient Bulk and Trading performance in 2HFY26. However, soft Differentiated performance is expected to continue as runups in CPO prices hits the subsegment first before other Downstream operations. Lastly, Industrial Development may exceed PATAMI targets of RM500-700m should the Bukit Kerayong SPA be completed within this FY.
Earnings Revision. Taking into account our higher FY26/27 CPO price assumptions and lower monthly FFB yield revisions of 7% for 1HFY27, we raise our earnings forecasts for FY26/27 by 2%/10% respectively.
Valuation. Following our increased earnings forecast, we retain our BUY call with a higher revised target price of RM7.70 (previous RM7.01) based on a P/E of 19.8x on FY27F EPS and 0% ESG factored premium/discount based on a three-star ESG rating.
Risk. EU export ban and regulations, changing weather patterns affecting FFB production, taxation and export ban in Indonesia threatening local CPO demand, frequent labour turnover and rising operational cost.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.078795 | 4.106433 |
| EUR | 4.719654 | 4.723326 |
| CNY | 0.606355 | 0.606824 |
| HKD | 0.519557 | 0.523596 |
| SGD | 3.183816 | 3.205474 |