SD Guthrie's yield drive could unlock RM482m annual profit

KUALA LUMPUR: SD Guthrie Bhd's ambition to raise plantation oil yields by one tonne per hectare by 2029 could potentially lift its annual net profit by RM482 million, providing a significant earnings growth opportunity beyond fluctuations in crude palm oil (CPO) prices.

In a note, CIMB Securities Sdn Bhd said achieving the target could unlock an estimated RM8 billion, or RM1.15 per share, in additional equity value, based on an assumed price-to-earnings multiple of 16.5 times.

The target forms part of the group's broader medium- to long-term strategy to improve shareholder returns, which also includes monetising strategically located plantation land and expanding its midstream and downstream businesses.

CIMB Securities said the strategy, outlined by SD Guthrie president and group chief executive officer Mohd Haris Mohd Arshad in a recent interview with The Edge, could form the basis of the group's forthcoming Value-Up plan.

Under the strategy, SD Guthrie is targeting top-quartile total shareholder returns (TSR) among plantation peers by 2032, compared with its year-to-date 2026 TSR of 4.4 per cent, which placed it in the third quartile at the time of the interview.

CIMB Securities views upstream productivity improvements as the group's strongest potential catalyst for sustainable earnings growth and a valuation re-rating, followed by land monetisation and higher-value downstream expansion.

SD Guthrie aims to increase its combined oil yield from a 2021 baseline of 3.99 tonnes per hectare to about five tonnes per hectare by 2029. However, its yield stood at 4.01 tonnes per hectare in 2025, indicating the scale of improvement needed to achieve the target.

CIMB Securities estimates that achieving the target would require an annual yield growth of 5.6 per cent between financial year 2025 (FY25) and FY29, potentially adding 460,636 tonnes to annual oil production.

However, the firm said the target remained ambitious, particularly given the potential impact of El Niño-related production disruptions in FY27 and FY28.

It added that the full earnings benefits had not been incorporated into its forecasts.

Beyond improving plantation productivity, SD Guthrie is looking to unlock value from its land bank through industrial development, targeting an annual earnings contribution of RM500 million to RM700 million from the segment.

The group expects industrial development to account for 25 per cent of its earnings within five years, with CIMB Securities saying it had identified sufficient land to sustain this ambition for at least another decade.

Less than 10 per cent of SD Guthrie's total land bank has been earmarked for potential industrial development, suggesting scope for further monetisation.

The segment generated RM430 million in profit before interest and tax (PBIT) in FY25, accounting for 12 per cent of group PBIT, before contributing RM689 million, or 32.5 per cent, in the first half of FY26.

SD Guthrie has also demonstrated its ability to monetise strategically located land, with three announced transactions this year covering 1,297-hectares at a weighted average selling price of RM15.41 per square foot.

Applying this benchmark to an illustrative 10,037-hectare monetisation programme could generate gross proceeds of RM16.6 billion, with cumulative gains potentially reaching RM10.4 billion, or RM1.50 per share, over several years, CIMB Securities estimated.

However, the firm said much of this potential value was already reflected in its sum-of-parts (SOP) valuation, which incorporates RM9.6 billion from land monetisation.

It viewed positively the group's strategy of retaining significant minority stakes in industrial development joint ventures (JVs), rather than relying solely on outright land disposals, as this could provide recurring earnings beyond initial disposal gains.

SD Guthrie also intends to gradually shift towards recurring development income, which management expects to eventually account for half of the industrial development segment's profits.

Meanwhile, the group plans to expand its midstream and downstream operations by doubling trading volumes to eight million tonnes, potentially through mergers and acquisitions (M&A), while increasing downstream processing capacity by 600,000 tonnes.

The additional capacity comprises 400,000 tonnes at its new Sei Mangkei refinery in Indonesia and 200,000 tonnes in Europe, bringing total processing capacity to about 4.6 million tonnes.

CIMB Securities said a larger trading platform could improve feedstock sourcing, refinery utilisation and supply chain efficiency, while a greater focus on higher-value business-to-business speciality products could support margin expansion.

However, it cautioned that acquisitions could increase capital and working capital requirements, while higher trading volumes might not necessarily translate into proportionately higher profits.

On the near-term outlook, SD Guthrie expects CPO prices to reach RM5,000 per tonne in 2027, above CIMB Securities' average FY27 forecast of RM4,550 per tonne.

Potential supply disruptions in Indonesia, stronger biodiesel demand and higher Indian consumption could support prices. However, the group expects El Niño-related dry weather to weigh on fresh fruit bunch (FFB) production in FY27 and early FY28.

The impact could be more pronounced in Indonesia and Papua New Guinea, while Malaysian estates are expected to be relatively sheltered.

CIMB Securities said the 12- to 16-month lag between adverse weather conditions and crop formation meant weaker production could partly offset the earnings benefits of higher CPO prices.

Rising input costs could also put pressure on margins, with SD Guthrie expecting fertiliser costs to increase by 12 to 20 per cent in FY27, although early procurement had largely insulated its FY26 costs.

Beyond operational challenges, regulatory uncertainty in Indonesia remains another concern for the group, particularly over the status of some of its plantation land and compliance with new agrarian reform requirements.

About 2,800-hectare of SD Guthrie's plantation land could potentially be affected by Indonesia's land enforcement programme. The area represents two per cent of its Indonesian planted area and 0.5 per cent of its total group planted area.

The land is part of Minamas Plantation, which SD Guthrie acquired from the Indonesian government in 2001 but is now classified by the authorities as forest land.

The group is negotiating a resolution, although the potential financial implications have yet to be disclosed.

Separately, CIMB Securities highlighted potential compliance costs arising from new agrarian reform requirements linked to the renewal of cultivation rights (HGU), some of which are due to begin in 2027.

Under its interpretation, plantation operators may need to support smallholder development equivalent to 20 per cent of their plantation holdings, although this may not necessarily involve surrendering existing estate land.

The firm said the key risks were higher compliance costs, difficulties securing suitable land and possible delays in HGU renewals, rather than an immediate reduction of 20 per cent in planted areas.

It maintained its five per cent SOP discount for Indonesian regulatory uncertainty.

CIMB Securities maintained its "Buy" recommendation on SD Guthrie with a target price of RM6.52, saying further upside would depend on the successful execution of the group's longer-term plans.