SD Guthrie selldown driven by ‘market overreaction’

 Maybank Investment Bank says the market largely misunderstood PNB’s US$300 million exchangeable sukuk issuance.

Maybank IB said SD Guthrie Bhd’s fundamentals remain intact despite its recent share price weakness. (SD Guthrie pic)

PETALING JAYA:

SD Guthrie Bhd’s recent share price weakness was driven by the market’s overreaction to Permodalan Nasional Bhd’s (PNB) latest exchangeable sukuk (ES) issuance, said Maybank Investment Bank (Maybank IB).

It added PNB’s US$300 million (RM1.22 billion) exchangeable sukuk announced last Wednesday has no earnings per share impact on SD Guthrie.

“We believe concerns over ES potential overhang are over and largely misunderstood,” Maybank IB said in a note today.

The five-year sukuk, or Islamic bond, will be exchangeable into ordinary shares of SD Guthrie, one of the world’s largest palm oil producers. The sukuk carries a profit rate of 1.5% and an exchange premium of 10%.

This is PNB’s second ES offering after a similar US$300 million issuance in January this year that is exchangeable into shares of Gamuda Bhd.

The state fund manager, which has a substantial stake in both companies, said the latest offering will fund investments in US dollar-denominated global sukuk assets.

Maybank IB said the plantation group’s “fundamentals remain intact” despite its recent share price weakness.

It also noted that since the sukuk was issued by PNB rather than SD Guthrie, there will be no new share issuance if investors exercise their options.

In addition, there must be a significant price appreciation before conversion rights can be exercised.

Maybank IB estimates SD Guthrie’s share price would need to hit at least RM8.66 before sukuk investors can exchange it for the stock, which is currently trading well below that level.

The shares have since recovered from RM6.14 on Sept 9, the day PNB announced the ES, to RM6.30 at the close today. The stock has risen 11.5% year to date. The latest price values the group at RM43.57 billion.

“We believe the recent selldown has been unwarranted as nothing has fundamentally changed in the past month except for an ES issued by PNB,” it said, upgrading the stock to “buy” from “hold” with an unchanged target price of RM7.10.

The upgrade comes on the back of Maybank IB projecting SD Guthrie’s core net profit to be RM2.9 billion for the year ending Dec 31 (FY2026), 5% above the market consensus of RM2.76 billion.

PNB manages more than RM360 billion in assets and holds substantial stakes in some of Malaysia’s largest listed companies. - FMT