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.
Higher crude palm oil (CPO) prices in financial year 2027 are expected to offset the effects of SD Guthrie Bhd's weaker production, according to a note from CIMB Securities Sdn Bhd. The firm predicts CPO prices may reach RM5,000 per tonne in 2027 as supply tightens. However, Malaysia's surplus inventories continue to suppress near-term prices.
Stronger CPO prices could mitigate SD Guthrie's production challenges, but the extent of the benefit will depend on the severity of yield losses, cost increases, and realized selling prices. SD Guthrie's Indonesian plantations faced severe drought, which could reduce fresh fruit bunch (FFB) yields and output with a six- to 18-month delay, potentially impacting FY28 performance.
The firm anticipates Malaysia and Papua New Guinea production growth in FY27, but lower output in Indonesia, without providing specific guidance. Indonesian agrarian reform introduces uncertainty regarding compliance with the 20 per cent plasma obligation, and SD Guthrie is investigating alternative community-support programs for land shortages, though the implementation and compliance costs remain unclear.
Higher wages and fertiliser costs are anticipated to increase production costs by one per cent and 1.4 per cent, respectively. Despite these headwinds, SD Guthrie's core net profit of RM821 million in Q3 brought its nine-month core earnings to RM2.3 billion, which aligns with CIMB Securities' FY26 forecast of RM3.08 billion and meets market expectations.
The firm retains its earnings forecasts for SD Guthrie, projecting core earnings of RM774 million in the fourth quarter. They anticipate net profit from industrial land sales of RM290 million and land compensation of RM68 million. CIMB Securities maintains a "Buy" rating on SD Guthrie stock with a target price of RM6.52.
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