SD Guthrie set to recur earnings of RM500m to RM1b over next five years from industrial developments, land disposal—RHB

• It noted that of seven MOUs signed by SD Guthrie to develop 6,070 acres of land over the next decade, only one has reached the SPA so far.

KUALA LUMPUR (July 22): SD Guthrie Bhd (KL:SDG) is on track to monetise its assets to recur earnings before income tax (Ebit) between RM500 million and RM1 billion over the next five years.

RHB Research in a note on Tuesday said income will likely come from land disposals and property development.

"This, with the output recovery at its plantations, leads us to believe that the stock should trade at a premium valuation, as contributions from new verticals have yet to be priced in," said the research firm.

The research house has a "buy" call on SD Guthrie with a target price of RM5.45 that includes an ESG premium of 4%.

It noted that of seven memorandums of understanding (MOUs) signed by SD Guthrie to develop 6,070 acres of land over the next decade, only one has reached the sale and purchase agreement (SPA) so far.

"Only one has reached the stage of an SPA and a JV being formed, that is the one with EcoWorld [Development Group Bhd], while the remaining six are being negotiated over, with ongoing due diligence.

"Going forward, the focus will continue to be on areas that are ripe for development like Johor, Negeri Sembilan and Selangor but SDG intends to only announce land sale/industrial park developments once SPAs are signed," it added.

RHB noted that from the SPA with ECW for 1,195 acres of land in its Bukit Pelandok estate, it estimated SDG could gain RM510-520 million from the disposal.

SD Guthrie could potentially gain more than double core profit if it successfully completes the remaining six land sales by FY2026.

"For the remaining six MOUs, however, the disposal gains would only be recognised from 2026 onwards, with the next potentially being the Carey Island land sale to Sime Darby Property [Bhd] (KL:SIMEPROP). We highlight that SDG's BV for all these land areas is RM1-1.20 psf," added RHB.

Further, a portion of the earnings will then be reinvested into upstream and downstream operations with the remainder allocated to dividend payouts to shareholders, it noted.

Additionally, the house noted that the company's 15MW solar plant under the Corporate Green Power Programme should have a higher internal rate of return (IRR) and is on track to be completed by the end of 2025.

It is now awaiting the announcement of the successful bidders of their Large Scale Solar (LSS) 5+ project, having submitted bids for approximately 100MW of solar power plants, the house added.

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