SD Guthrie Bhd has retained its BUY call from RHB Investment Bank Bhd (RHB Research), with a revised target price of RM5.55 which offers a potential 16% upside. The company's valuation, pegged at 21 times FY25 price-to-earnings ratio, is seen as attractive within its peer range of between 18 times and 22 times, while it anticipates stronger fourth-quarter results and significant contributions from new segments starting FY26.

The group posted a 2.4% year-on-year increase in fresh fruit bunch (FFB) output for the first nine months of FY24, driven by a robust 23% growth in Malaysia. However, this was partially offset by weaker performance in Indonesia and Papua New Guinea due to El Niño and flooding, respectively.

Consequently, the full-year FFB growth guidance has been lowered to 2%-3%, with expectations of recovery across all regions in FY25 as weather conditions normalise.

Crude palm oil prices are forecasted to remain high into the first half of 2025 (1H25) before easing in 2H25. To date, the company has locked in forward sales of approximately 10% of its Malaysian output for FY25 at RM4,240 per tonne.

Operational efficiency has also improved, with unit costs reduced to RM2,550 per tonne in the first nine months of 2024, a 2.5% decrease year-on-year, and projected to end the year at RM2,500 per tonne.

The downstream segment faced challenges in the Asia-Pacific region during the third quarter but is expected to recover as refining margins improve in Indonesia and strengthen further in the European Union.

Meanwhile, the company recognised an RM390 million gain on land sales in the third quarter from disposals in Johor and Kedah, with an additional RM200 million expected in the fourth quarter. Total gains from land sales are projected to reach RM600 million for FY24.

A reclassification of segmental earnings starting in the fourth quarter will group operations into upstream, downstream, industrial development and renewable energy (RE). The industrial development segment will include income from industrial land sales and property developments, while the renewable energy division will encompass revenues from solar farms, biogas and land lease agreements.

These new segments are projected to contribute meaningfully from FY26 as the company's diversification efforts begin to materialise.

Despite lowering FFB growth expectations for FY24, SD Guthrie remains focused on cost optimisation and capitalising on strengthening market dynamics. The company's strategic diversification into industrial development and RE underscores its commitment to long-term growth, with analysts projecting a stable outlook for earnings beyond FY24.