UOBKH Research maintained its forecast fresh fruit bunch growth of 3% year-on-year for SD Guthrie this year.
PETALING JAYA: Plantation giant SD Guthrie Bhd is expected to see its production growth moderate in the second half of this year (2H24).
According to UOB Kay Hian Research (UOBKH Research), this is due in part to a high-base effect, as productivity recovery in the group’s Malaysian estates began in 2H23.
In addition, SD Guthrie’s production in Indonesia, Papua New Guinea and the Solomon Islands will likely remain muted due to weather and accessibility issues.
Compared with 1H24, however, output should nonetheless rise strongly in tandem with 2H24’s seasonal peak production cycle, the brokerage said.
“This should bring down unit production costs for crude palm oil (CPO), which averaged at RM2,567 per tonne in 1H24, partly offset by increased fertiliser usage as application in 1H24 was slightly behind schedule (75% done),” UOBKH Research said.
It maintained its forecast fresh fruit bunch (FFB) growth of 3% year-on-year for SD Guthrie this year.
UOBKH Research reiterated its “hold” call on SD Guthrie at a higher target price of RM4.75.
“Our target price is now pegged to 22 times price-earnings (from 17 times previously), implying minus 0.25 standard deviation to SD Guthrie’s five-year historical mean premised on improved sentiment on the stock as a potential beneficiary of the European Union Deforestation Regulation (EUDR) as well as for its diversification efforts into renewables, while also rolling forward our valuation base to 2025,” the research house said.
SD Guthrie announced last week that it has delivered its first shipments of 40,000 tonnes of palm oil to Europe that are deemed to be fully compliant with the EUDR.
“We are encouraged by this news as this is a positive indication of SD Guthrie’s EUDR compliance readiness ahead of official implementation on Dec 30, 2024, and there are potential price premiums to be garnered in the near term due to concerns of supply shortages at the onset of EUDR’s implementation,” UOBKH Research said.
Overall, the research house said SD Guthrie’s 2H24 earnings should remain steady, with upstream results supported by seasonally higher FFB output while spot CPO prices continued to average RM4,000 per tonne quarter-to-date, in line with the previous two quarters.
“Given relatively little hedging for 2H24, the group should remain positively exposed to further pick-ups in spot CPO prices which edged back above RM4,000 per tonne over recent weeks,” UOBKH Research said.
“Separately, foreign-exchange impacts arising from the recent strengthening of the ringgit against the US dollar are manageable due to natural hedging largely by its US dollar-denominated borrowings and payables,” the research house added.
