PETALING JAYA: Analysts are positive on SD Guthrie Bhd’s renewable energy (RE) plans, which involves converting less productive land to solar farms as part of the group’s asset-monetisation initiatives.
This was despite the group’s disappointing first quarter of financial year 2024 (1Q24) results, which had missed the expectations of most analysts.
SD Guthrie, formerly known as Sime Darby Plantation Bhd , is committed to monetising its land assets, said Hong Leong Investment Bank (HLIB) Research in a report.
The group recently announced its plan to develop a 1,000-acre green park for solar farms, namely, the Kerian Integrated Green Industrial Park (Kigip) in Perak with Permodalan Nasional Bhd.
The project will involve the development of solar farms with a capacity of one gigawatt (GW) over the next three to five years, as well as an industrial park that will likely be developed into three phases.
“We understand that the project is expected to deliver a project internal rate of return of 8% to 9% and equity investment rate of return of up to 13%,” added HLIB Research.
The research house, however, has lowered the group’s financial year 2024 (FY24) to FY25 core net profit forecasts by 9.1% and 3.7%, mainly to account for lower fresh fruit bunch output assumption at its Papua New Guinea operations and lower joint venture earnings assumption.
“We note that our forecasts have yet to include potential contribution from its new RE and property businesses, as details remain sketchy for the time being,” HLIB Research said. It also said, “In any case, earnings contribution from these two new segments will likely be insignificant in the near term, given its large earnings base.”
Post-earnings revision, HLIB Research has maintained a “hold” call on the stock with a lower target price (TP) of RM4.09 based on 20 times revised FY24 core earnings per share of 20.4 sen.
Meanwhile, RHB Research said SD Guthrie is set to diversify its earnings sources away from plantations in the medium term.The brokerage firm, which is positive on the group’s RE plans to venture into solar farms, noted that SD Guthrie is currently already leasing out 24 sites housing 583 MW of solar power and developing a 15 MW solar farm in Kedah slated for completion by end-2025.
SD Guthrie is also bidding for three new sites under the large-scale solar five project, with a goal of having 1,000 MW in RE assets in the next three to five years, said RHB Research.
This is together with its plan to develop its 1,000-acre Kigip in Perak with solar farms to support the electrical and electronics providers within the park, it added.
RHB Research said it has kept a “neutral” call on the stock with a lower TP of RM3.90, post a 7% to 9% reduction in FY24 to FY26 forecast earnings.
“This, in turn, was after we raised assumptions on cost and reduced that on joint-venture contributions,” it noted.
Kenanga Research in a recent note to clients said SD Guthrie was making a new push into the property and RE businesses.
“SD Guthrie will drop ‘plantation’ from its new name SD Guthrie with effect from today on Bursa Malaysia.
“While reflecting the desire to venture beyond plantations, adopting the name ‘Guthrie’ which has a long plantation history suggests that plantation may remain core for some years to come,” explained Kenanga Research.
The research house noted that both industrial property and solar farms are among the projects already identified, but the key details such as stakeholders, funding requirements and project specifics are still outstanding.
The group is aiming for equity control and plans to kickstart the projects soon, but earnings are likely beyond FY24, the research house said. It added that it was “neutral” on the new ventures at this juncture.
Kenanga Research has cut its FY24 net profit forecast for SD Guthrie by 3%, but kept its FY25 numbers. In terms of valuations, the research house has maintained its TP of RM4 for the stock.
“With some of its estates ripe for property development, the stock is defensive and undervalued from an asset point of view, but long-term expansion plans and productivity management strategies are less clear cut. Hence, we are keeping our market perform call,” it added.