CIMB Securities upgrades SD Guthrie to 'Buy' after 17pct share price correction

KUALA LUMPUR: CIMB Securities Sdn Bhd has upgraded SD Guthrie Bhd to "Buy" from "Hold" following a 17 per cent correction in its share price since August, despite expectations of weaker third-quarter earnings.

The research firm said the decline in SD Guthrie's share price offered a more attractive entry point ahead of a potential crude palm oil price upcycle in 2027.

However, it lowered its target price for the plantation group to RM6.52 from RM6.86 to reflect heightened regulatory risks in Indonesia.

CIMB Securities expects SD Guthrie's core net profit to fall 32 per cent quarter-on-quarter to RM645 million in the third quarter, as lower land disposal gains more than offset stronger upstream earnings.

The group is scheduled to announce its third-quarter results on Nov 5.

The projected earnings would bring its cumulative nine-month core net profit to RM2.14 billion, representing 69 per cent of CIMB Securities' full-year forecast.

SD Guthrie reported a net profit of RM987 million in the second quarter, up 95 per cent from RM505 million a year earlier, largely driven by stronger contributions from its industrial development and downstream businesses.

Its industrial development segment recorded a profit before interest and tax of RM529 million during the quarter, following the completion of a 378.38-hectare land disposal in Kulai, Johor.

Despite the weaker quarterly earnings outlook, CIMB Securities remains positive on SD Guthrie's land monetisation strategy, supported by the RM798 million Bukit Kerayong disposal and RM419 million Kulai disposal.

It said the government's decision to retain the 30 per cent Bumiputera equity requirement, instead of raising it to 50 per cent, could broaden the pool of potential buyers and facilitate future land disposals.

The requirement applies to qualifying property transactions involving government-linked companies and government-linked investment companies.

CIMB Securities maintained its financial year 2026 industrial development net profit forecast of RM1.03 billion, although earnings recognition remains dependent on the timely completion of land disposals.

Meanwhile, the research firm said the higher minimum wage taking effect in June 2027 could weigh on SD Guthrie's earnings in subsequent years.

Its preliminary sensitivity analysis suggests that the wage increase could reduce net profit by two per cent in FY27 and three per cent in FY28, assuming most of the group's Malaysian estate workers are affected.

At press time, SD Guthrie's shares were trading at RM5.79 apiece, up four sen or 0.7 per cent from yesterday's close of RM5.75.