Lang
Shares of SD Guthrie Bhd (KL: SDG), the world's leading palm oil producer by acreage, experienced a decline in Wednesday trading following a weaker-than-expected quarterly earnings report.
Maybank Investment Bank and TA Securities subsequently downgraded their recommendations for the stock. However, a significant majority of research houses are advising investors to look beyond the recent results, which were influenced by disposal gains and other one-off items. These analysts anticipate a seasonally stronger July-December period for the company.
'We expect earnings to pick up from stronger output and higher prices' in the second half of the year, stated RHB Research. The firm maintained its 'buy' rating on the stock and raised its target price to RM8.00.
SD Guthrie's stock declined by eight sen, or slightly over 1%, to RM6.83, after having charted a new all-time high of RM7.00 earlier on Wednesday.
Despite the recent dip, SD Guthrie's shares are still up by more than 20% since the start of the year. This performance comes as concerns escalate over the intensifying heat from the El Niño weather pattern, which is expected to lower oil palm fruit yields and consequently reduce the supply of edible oil used in a vast array of products, from lipstick to soap.
The push for a higher blend of palm-based methyl ester in biodiesel, driven by a surge in crude oil prices amid the Middle East conflict, has also contributed to a 16% year-to-date increase in crude palm oil (CPO) prices.
'We expect the upstream segment to benefit from higher CPO prices' in the second half, given supply risks from the current dry spell and the potential development of a strong El Niño, according to CGS International.
Furthermore, SD Guthrie is nearing its profit target of up to RM700 million from its industrial development business, having already booked an operating profit of RM689 million in the first six months. The company added that it could exceed this aim by the end of 2026, potentially leading to higher dividends. Source: KLSE Screener