KUALA LUMPUR (Aug 7): SD Guthrie Bhd (KL:SDG) anticipates its downstream segment will continue to face difficulties this year, as margin compression is expected to persist due to operational challenges in both Europe and the Asia-Pacific region.
Rising raw material costs in Europe had compressed SD Guthrie International’s (SDGI) margins, as they outpaced selling price increases, said the group’s managing director Datuk Mohamad Helmy Othman Basha.
Speaking to reporters at a press conference following the release of SDG’s financial results for the second quarter ended June 30, 2025 (2QFY2025), Helmy said the weaker market demand and subdued economic outlook in Europe had also heightened competition in the continent.
A similar trend was observed in Asia-Pacific, albeit to a lesser extent, he said.
Nevertheless, Helmy said the tough situation in its downstream segment does not mean that the group is not going to grow its footprint in major markets.
“Obviously, now is not the time [for a recovery in the downstream segment],” said Helmy. “Just because we are facing headwinds downstream this year, it does not mean the strategy to grow our downstream footprint will slow down,” he added.
The group’s downstream operations, housed under SDGI, saw its profit before interest and tax (PBIT) fall 44% year-on-year to RM126 million in 2QFY2025, from RM225 million a year ago. For the first half of the year, PBIT fell 42% to RM202 million from RM346 million in 1HFY2024.
Group chief operating officer Mohd Haris Mohd Arshad said the group will continue its downstream expansion in segments that it had been focusing on, particularly in the oil and fats segment, which offers differentiated products such as bakery fats, dairy replacers, frying oils, and ingredients for confectionery and culinary uses.
“The next step is to look at non-food now,” said Haris, adding that the group is eyeing opportunities to rebalance its downstream portfolio between food and non-food, and its moves into the animal feed and oleochemical sectors reflect that.
“To that end, we made a small acquisition earlier this year of Maravesa, a company involved in the animal feed and biofuel sectors.
“We also like the oleochemical sector. Two years ago, oleochemical delivered super profits; today, it’s in a trough, with very poor margins. But if you take a contrarian view, now might be the right time to enter,” said Haris.
At the time of writing on Thursday, shares of SD Guthrie rose three sen or 0.63% to RM4.78, giving it a market capitalisation of RM32.99 billion.
Hoping for SST exemption
When asked about the potential impact of the 5% sales and service tax (SST) on palm kernel oil (PKO), SD Guthrie chief financial officer Renaka Ramachandran acknowledged the concern but declined to quantify the effect.
“We are aware of the potential impact, but I’m not going to disclose the numbers related to that at this time,” she said.
“There is a request or a write-in for an exemption (as an industry player). We are hoping to hear back on that. So chances are, the exemption will come through.”
Previously, local research houses flagged that the oleochemical sector may face higher input costs beginning July 1, as PKO — formerly exempt — has been made taxable under the revised SST structure.
The updated framework also covers refined, bleached and deodorised palm kernel oil and palm kernel shell, which have been reclassified under the expanded tax scope.
It is understood that discussions between the government and industry stakeholders on implementation of the SST are still ongoing.