SD Guthrie selldown driven by ‘market overreaction’

Maybank Investment Bank (Maybank IB) has revealed that SD Guthrie Bhd's recent share price decline is a result of the market's overreaction to Permodalan Nasional Bhd (PNB) announcing an exchangeable sukuk (ES) issuance. The ES, worth US$300 million (RM1.22 billion), does not impact SD Guthrie's earnings per share, according to Maybank IB. The bank believes concerns over potential ES overhang have been overestimated and misunderstood.

The five-year sukuk, offering a 1.5% profit rate and a 10% exchange premium, will be exchangeable into SD Guthrie's ordinary shares. PNB, which has a substantial stake in both companies, plans to use the ES issuance to fund investments in US dollar-denominated global sukuk assets. Since PNB, and not SD Guthrie, issued the sukuk, there will be no new share issuance if investors exercise their options.

Maybank IB asserts that SD Guthrie's fundamentals remain intact despite the recent share price weakness. The bank estimates the stock's price would need to rise to at least RM8.66 before sukuk investors can convert their holdings. Currently trading below this level, SD Guthrie's shares have risen 11.5% year to date. The stock, valued at RM43.57 billion, has been upgraded to "buy" from "hold" with an unchanged target price of RM7.10.

Maybank IB projects SD Guthrie's core net profit to be RM2.9 billion for the year ending Dec 31 (FY2026), 5% higher than the market consensus of RM2.76 billion.