SD Guthrie Berhad (SDG MK) has reported a slight earnings beat for the second quarter of 2024, with core earnings rising to RM415 million, a substantial increase of over 50% year-on-year. This boost is attributed to higher operating profits in its Malaysian upstream segment, buoyed by improved Fresh Fruit Bunches (FFB) yields and elevated average Crude Palm Oil (CPO) prices. However, challenges persist in Indonesia and Papua New Guinea due to adverse weather conditions affecting crop yields. Despite this, the downstream segment has shown a robust recovery, with profits climbing to RM111 million, marking a significant year-on-year increase.

Analysts are optimistic about SD Guthrie's prospects. MIDF Stock Broking House has maintained a NEUTRAL rating with a revised target price of RM4.80, up from RM4.18 previously. They highlight the recovery in the upstream segment and promising downstream prospects, despite ongoing production issues in Indonesia. They note that earnings forecasts for FY24-25 have been adjusted upwards by 5.4% and 10.9% respectively.

Kenanga Stock Broking House, while revising their target price to RM4.20 from RM4.00, maintains a MARKET PERFORM rating. They have upgraded earnings estimates for FY24-25 by 11% and 4% respectively, citing strong 2QFY24 results that exceeded their expectations. Their analysis points to continued positive performance in the upstream sector, which is expected to offset any potential softness in downstream margins.

In the upstream sector, SD Guthrie's production and profitability have surged. The company's upstream segment saw a dramatic rise in both revenue and profit, driven largely by a rebound in Malaysian FFB production and higher average CPO prices. However, production in Indonesia has suffered due to ongoing dry weather, leading to a 22.3% year-on-year decline. Despite the challenges, the average CPO and Palm Kernel (PK) prices have improved to RM4,029 per metric tonne and RM2,166 per metric tonne respectively, though the all-in cost of production remains elevated at nearly RM3,000 per metric tonne.

The company's downstream division has shown strong performance, benefiting from increased sales volume and improved margins, particularly in Europe. This segment's profitability has doubled year-on-year, thanks to a recovery in demand for Palm Oil Products (PPO).

In a recent strategic move, SD Guthrie has signed a memorandum of understanding with TH Properties to develop a HALMAS-certified managed industrial park at its Bukit Pelandok estate in Negeri Sembilan. This project aligns with the company's strategy to monetise its non-core assets and expand its industrial park portfolio.