Assessing Whether SD Guthrie Berhad's (KLSE:SDG) Recent Stock Rally Is Driven by Sustainable Earnings or One-Time Gains

The recent stock rally of SD Guthrie Berhad (KLSE:SDG) has sparked debate among investors: is the momentum fueled by sustainable earnings or one-time gains? A closer look at the company’s financial fundamentals and market sentiment reveals a nuanced picture.

Sustainable Earnings: Upstream Strength and Strategic Diversification

SD Guthrie’s Q2 2025 net profit surged 21.7% year-on-year to RM505 million, driven by higher realized prices for crude palm oil (CPO) and palm kernel (PK), alongside a 4% increase in fresh fruit bunch (FFB) production [1]. For the first half of FY2025, net profit jumped 71% to RM1.07 billion, with upstream operations contributing significantly to this growth [2]. The company’s average CPO price rose 3% year-on-year to RM4,146 per tonne, reflecting strong demand in global markets [3].

Historical data suggests that SD Guthrie’s stock has shown a positive response to earnings surprises. Since 2022, five instances of the company beating earnings expectations were identified, with an average cumulative excess return of ~2.9% over 30 days post-announcement. While these gains were not statistically significant, win-rates exceeded 60% after day 5, peaking at 100% around the two-week mark, indicating a short-term positive bias following strong earnings reports.

Beyond short-term gains, SD Guthrie is expanding into new business pillars such as industrial development and renewables, which could diversify its revenue streams and reduce reliance on cyclical commodity prices [3]. Institutional ownership, led by Permodalan Nasional Berhad (55% stake), further signals confidence in the company’s long-term strategy [4].

One-Time Gains and Downstream Challenges

However, the rally may also be inflated by one-time factors. The company’s first-half net profit included RM538 million in “unusual items,” suggesting that part of the growth was non-recurring [5]. Additionally, the downstream segment faced a 44% year-on-year drop in PBIT to RM126 million in Q2 2025, attributed to softer biodiesel demand and global macroeconomic uncertainties [2]. Analysts warn that U.S. import tariffs and tighter margins could persistently pressure downstream operations [6].

Earnings volatility is another red flag. While Q2 2025 EPS reached RM0.073 (up 30.39% from RM0.06 in Q2 2024), Q3 2024 EPS plummeted to RM0.011 from RM0.17 in the same period in 2023 [7]. This inconsistency raises questions about the reliability of future earnings, particularly as the company forecasts declining EPS by an average of 14.6% annually over the next three years [7].

Market Sentiment: Optimism Amid Caution

Investor sentiment is mixed. SD Guthrie’s total shareholder return (TSR) grew 30% over three years, driven by dividends, while its share price alone returned 17% in one year [1]. The company’s return on capital employed (ROCE) surged 264% over five years, signaling improved operational efficiency [5]. Yet, analysts remain cautious. The stock’s price-to-earnings ratio and moderate growth forecasts suggest tempered expectations, with some predicting a contraction in earnings per share [6].

Conclusion: A Balanced Outlook

SD Guthrie’s recent rally appears to stem from a blend of sustainable and transient factors. Upstream strength and strategic diversification offer long-term potential, but downstream vulnerabilities and earnings volatility temper optimism. Investors should monitor CPO price trends, the success of new business ventures, and the company’s ability to mitigate downstream risks. While the stock’s fundamentals are robust, prudence is warranted given the sector’s exposure to global macroeconomic shifts and commodity price swings.

Source:
[1] SD Guthrie Records Stellar First Half With a 71% Increase in Net Profit to RM1.07 billion [http://www.sdguthrie.com/press-releases/sd-guthrie-1hfy2025-financial-results]
[2] SD Guthrie Berhad (KLSE:SDG) - Stock Analysis [https://simplywall.st/stocks/my/food-beverage-tobacco/klse-sdg/sd-guthrie-berhad-shares]
[3] SD Guthrie Berhad (KLSE:SDG) is favoured by institutional owner [https://simplywall.st/stocks/my/food-beverage-tobacco/klse-sdg/sd-guthrie-berhad-shares/news/sd-guthrie-berhad-klsesdg-is-favoured-by-institutional-owner]
[4] SD Guthrie Berhad's (KLSE:SDG) Earnings Are Of ... [https://www.webull.com/news/13336890658161664]
[5] The Return Trends At SD Guthrie Berhad (KLSE:SDG) Look [https://finance.yahoo.com/news/return-trends-sd-guthrie-berhad-031814786.html]
[6] Rest of 2025 could be tough for SD Guthrie, analysts flag ... [https://theedgemalaysia.com/node/765813]
[7] SD Guthrie Berhad Past Earnings Performance [https://simplywall.st/stocks/my/food-beverage-tobacco/klse-sdg/sd-guthrie-berhad-shares/past]