Higher CPO prices to cushion SD Guthrie's weaker output

KUALA LUMPUR: Higher crude palm oil (CPO) prices in financial year 2027 (FY27) are likely to cushion the impact of weaker production at SD Guthrie Bhd following dry weather that affected its yields, said CIMB Securities Sdn Bhd.

In a note, the firm said SD Guthrie sees CPO prices potentially reaching RM5,000 per tonne in 2027 as supply conditions tighten. However, high Malaysian inventories continue to weigh on near-term prices.

"Higher CPO prices could cushion weaker production, although the net earnings benefit will depend on the extent of yield losses, unit-cost increases and realised selling prices," it said.

SD Guthrie's Indonesian estates experienced around four months of severe drought, which could reduce fresh fruit bunch (FFB) yields and output with a six- to 18-month lag, extending into early FY28.

"Management expects FY27 production growth in Malaysia and Papua New Guinea but lower output in Indonesia, without providing firm guidance.

"Indonesia's agrarian reform also adds uncertainty over compliance with the 20 per cent plasma obligation. The group is exploring alternative community-support programmes where additional land is unavailable, but implementation details and compliance costs remain unclear," said CIMB Securities.

The firm also said higher wages and fertiliser costs are expected to add about one per cent and 1.4 per cent, respectively, to production costs in FY27.

SD Guthrie's core net profit of RM821 million in the third quarter brought its nine-month core earnings to RM2.3 billion, representing 75 per cent of CIMB Securities' FY26 forecast of RM3.08 billion and broadly meeting expectations.

The firm maintained its earnings forecasts for SD Guthrie, implying core earnings of RM774 million in the fourth quarter.

It said provision write-backs were not expected to recur, while lower CPO prices and production were likely to weigh on plantation earnings.

"These headwinds should be partly offset by RM290 million in net profit from industrial land sales and RM68 million in land compensation."

CIMB Securities maintained its "Buy" call on the stock with a target price of RM6.52.