SunRice (ASX: SGLLV) Remains a Long-Term “Buy” with Solid Growth, Strategic Acquisitions, and Promising Outlook

Key Takeaways We’re maintaining a “buy” recommendation for Ricegrowers Limited (ASX: SGLLV), or The SunRice Group, thanks to its diverse business and solid performance in FY25. The company saw a 5% increase in net profit, even with some tough market conditions. Its recent acquisitions, like SavourLife and Simply Delish, help strengthen its position in high-margin areas. While facing pricing pressures and currency challenges, SunRice’s ability to manage costs and improve its product mix has kept things on track. With a target price of $14.7 per share, we still think it’s undervalued, and its growth potential makes it a solid long-term pick. — We continue to hold a long-term “buy” recommendation on Ricegrowers Limited (ASX: SGLLV), better known as The SunRice Group. The company’s well-diversified business model across Rice Pool, International Rice, Rice Food, Riviana Foods, CopRice, and Corporate gives it a competitive edge in both staple food markets and premium product categories. SGLLV has successfully balanced volume-driven growth with margin expansion, leveraging its strong supply chain and brand presence. Strong First-Half FY25 Performance Reflects Margin Expansion and Profit Growth SGLLV delivered a solid first-half FY25 performance, with revenue holding steady at $912 million while EBITDA increased to $67.9 million. Net profit after tax (NPAT) was up 5% year-over-year, driven by improved product mix, manufacturing efficiencies, and cost-saving initiatives. Despite macroeconomic headwinds, the company continues to execute well, demonstrating resilience in a dynamic operating environment. Strategic Acquisitions Position the Company in High-Margin Growth Categories SGLLV’s recent acquisitions of SavourLife and Simply Delish further strengthen its portfolio. SavourLife enhances the company’s presence in the growing premium pet food segment, which benefits from strong consumer demand and higher margins. Meanwhile, Simply Delish expands SGLLV’s footprint in the chilled food sector, allowing Riviana Foods to capture more value through an integrated supply chain. These acquisitions align with the company’s strategy of diversifying beyond traditional rice products and capitalizing on higher-margin categories. Volume Growth in Key Markets Offsets Pricing Pressures We see continued volume growth as a major strength for SGLLV. The company leveraged strong U.S. rice supply to drive increased export volumes while gaining market share in Papua New Guinea and expanding its Rice Flour and Rice Cakes businesses. Toscano bakery goods also performed well. However, global rice supply dynamics have led to pricing pressures, particularly in tender markets, while foreign exchange headwinds—such as the depreciation of the PNG Kina—have weighed on revenue. SGLLV’s disciplined pricing strategies and cost efficiencies have helped mitigate these challenges. Looking ahead, SGLLV remains focused on sustaining EBITDA growth through branded product sales, operational efficiencies, and disciplined cost management. The company is also making meaningful progress in sustainability, with a clear roadmap toward emissions reduction and supply chain resilience. Additionally, the upcoming deregulation of the NSW rice market in 2025 is a key transition that SGLLV is actively managing through engagement with growers to ensure supply stability. With a target price of $14.7 per share, we see SGLLV as a strong long-term investment. Despite pricing and macroeconomic uncertainties, the company’s ability to execute strategic growth initiatives, expand into higher-margin segments, and drive operational efficiencies reinforces our positive outlook. We maintain our “buy” recommendation, as SGLLV continues to demonstrate the qualities of a well-managed agribusiness with strong defensive characteristics and growth potential.

We’re maintaining our “buy” rating on Ricegrowers Limited (ASX: SGLLV) because the company continues to show strong fundamentals and resilience, even in the face of challenging market conditions. Despite some macroeconomic headwinds, SGLLV has been able to improve its profitability via cost control, efficiency gains, and strategic growth initiatives. In fact, our valuation suggests that SGLLV is undervalued at its current price, and we see good potential for upside. When it comes to valuing SGLLV, we used a combination of methods to get a clearer picture. We ran a Discounted Cash Flow (DCF) model, including the Gordon Growth and Revenue Exit approaches, with a discount rate ranging from 8.3% to 9.3% and a perpetuity growth rate of 0.8% to 1.8%. Our analysis suggests the fair value for SGLLV is around $14.7 per share, which is much higher than its current market price. In addition to the DCF models, we also looked at how SGLLV stacks up against its peers using relative valuation. When we compare metrics such as price-to-earnings, price-to-book, and price-to-sales, SGLLV looks undervalued compared to other players in the same space, which strengthens our case for the stock being a solid investment opportunity. Given that SGLLV is still trading below our estimated fair value, we see strong potential for upside, making it an attractive long-term candidate for your portfolio. The Strength of SGLLV’s Business Model and Diversified Operations SGLLV’s business model is diverse and well-balanced, which has allowed it to remain resilient even when certain segments of the market face challenges. The company operates across a variety of sectors, including rice production, specialty foods, and pet nutrition. This diversification provides stability, as downturns in one area can be offset by growth in another. For example, while global rice supply challenges and cost-of-living pressures affected some of SGLLV’s markets, other segments like pet food and specialty foods performed well, contributing to solid profits. The company’s ability to adapt to different market conditions and deliver consistent results is evident in their 1H FY25 performance. Despite a slight dip in overall revenue, SGLLV was able to increase its EBITDA and NPAT through better cost management, product mix decisions, and efficiency improvements. This level of financial resilience, even in tough times, shows that SGLLV is a well-managed company with a solid foundation. Strategic Acquisitions Driving Growth in High-Margin, High-Growth Segments SGLLV has also been proactive about growth through acquisitions, which we see as a positive move for the company’s future. For instance, the acquisition of SavourLife, a growing pet food brand, gives SGLLV an edge in the high-growth companion animal sector. Additionally, the purchase of Simply Delish strengthens SGLLV’s position in the chilled food market, which has been expanding rapidly. These acquisitions, along with their existing brands, should allow SGLLV to further tap into high-margin, high-growth segments and continue to diversify its revenue streams. We believe that these strategic moves will lead to sustained growth and profitability in the coming years. Resilience Amid Challenges: Navigating Market Pressures and External Factors SGLLV has shown impressive resilience in navigating the challenges that have come its way, from rising competition to supply chain disruptions and geopolitical risks. For example, the depreciation of the PNG Kina had an impact on revenues from their Trukai business. However, SGLLV was able to mitigate some of this through effective pricing strategies. Additionally, global rice supply challenges and increased competition in certain regions placed pressure on revenues, but SGLLV adapted by optimizing its product mix and improving cost efficiencies. Despite these pressures, SGLLV was able to maintain a strong profit margin and even grow its profitability in certain segments, such as Riviana Foods and CopRice. This ability to adjust to changing market conditions and continue growing is a strong indicator of the company’s management effectiveness and operational strength. Strong Shareholder Returns and Growing Market Confidence In terms of shareholder returns, SGLLV delivered a remarkable TSR of 48.2% in 1H FY25, which far outpaced the ASX300 Accumulation Index. The fact that SGLLV was included in the S&P/ASX Agribusiness Index further confirms the company’s strong position within the agribusiness sector. Being part of such a well-regarded index not only boosts investor confidence but also positions SGLLV as a key player in the agribusiness space, attracting more attention from institutional investors. Solid Outlook for FY25 and Beyond: Confident in SGLLV’s Long-Term Potential Looking ahead, SGLLV is expecting revenue to stay fairly stable in FY25, with moderate growth in EBITDA. The company is focusing on improving profitability through cost control, operational efficiencies, and stronger branded product sales. While there are still challenges to navigate, such as competition, geopolitical tensions, and consumer spending pressures—SGLLV has shown time and again that it can manage these risks effectively. Additionally, SGLLV’s ongoing efforts to support its growers and strengthen its position in the Riverina region, as well as its 2030 Growth Strategy, show that the company is positioning itself for long-term success. The company’s commitment to sustainability and the goal of reaching net-zero emissions by 2050 is also a positive factor that should resonate well with investors who are looking for environmentally-conscious companies with a long-term view. Ultimately, we believe that SGLLV is undervalued, and that its diversified portfolio, strategic acquisitions, and strong operational management make it a solid long-term investment. The company has demonstrated resilience and flexibility in a challenging market environment, and its continued focus on cost efficiency, brand strength, and operational improvements puts it in a strong position for future growth. With a fair value of $14.7 per share and a solid track record of delivering value for shareholders, we are confident in SGLLV’s long-term prospects. Given its market position, growth strategy, and attractive valuation, we are maintaining our “buy” rating on the stock and continue to see significant upside.

Earnings Overview for 1H FY25: Solid Profit Growth Amid Market Challenges For the first half of FY25, The SunRice Group posted strong earnings despite facing several market challenges. Revenue for the period was reported at $912 million, which represented a slight decline compared to the $919 million recorded in the prior corresponding period (1H FY24). While revenue faced downward pressure due to competitive pricing and various global market challenges, SunRice effectively managed its operations to achieve notable profitability improvements. EBITDA for 1H FY25 came in at $67.9 million, reflecting a 7% increase from the prior year. This growth can be attributed to cost control measures, an improved product mix, and efficiencies in both manufacturing and logistics. NPAT (Net Profit After Tax) stood at $31.9 million, marking a 5% increase compared to 1H FY24. This solid profit performance highlights the effectiveness of SunRice’s strategy in managing external challenges while capitalizing on internal efficiencies. Segment Performance: Strategic Growth Across Key Divisions SunRice’s segment-specific performance in 1H FY25 reflected a mixed yet generally positive outcome across various areas of the business. Rice Food, Riviana Foods, and CopRice saw significant growth in profit margins, driven by improved product mix, manufacturing efficiencies, and reduced logistics costs. These segments helped offset challenges in other parts of the business and provided substantial contributions to EBITDA and NPAT. Rice Pool faced pressure due to ample rice supply in the Northern Hemisphere, which resulted in deflationary pricing in global tender markets. The U.S. rice distribution channels, in particular, saw reduced pricing, impacting revenue from this segment. International Rice also experienced mixed results, benefiting from increased U.S. export volumes but being negatively affected by competitive pricing pressures and pricing declines in some key markets. Despite challenges in certain areas, the company’s diversified business model allowed for a relatively stable financial performance overall. Balance Sheet Strength: Maintaining Liquidity and Financial Flexibility The SunRice Group’s balance sheet remains robust, providing the financial flexibility needed to navigate external market fluctuations and invest in growth initiatives. Net Debt and Leverage: The company has carefully managed its net debt position, despite the strategic acquisitions of SavourLife and Simply Delish during the period. These acquisitions were financed in a way that did not significantly impact the overall debt structure. SunRice’s ability to generate cash from operations has allowed it to maintain a manageable debt load while executing on its growth strategy. Cash Flow and Free Cash Flow: Operating cash flow for the period was solid, supported by the company’s strong ability to manage working capital. Free cash flow benefited from cost control measures and operational efficiency improvements, allowing the company to generate sufficient liquidity to fund acquisitions and capital investments. Equity and Shareholder Returns: The Group declared an interim dividend of 15 cents per B Class Share, reflecting its commitment to returning value to shareholders. With a Total Shareholder Return (TSR) of 48.2% for 1H FY25, SunRice outperformed the broader market (ASX300 Accumulation Index), which posted a TSR of 17.2%. This demonstrates investor confidence in SunRice’s strategy and its long-term growth prospects. Liquidity Position: The Group’s liquidity remains healthy, bolstered by a strong cash balance and access to debt facilities. This gives SunRice the ability to pursue further strategic investments, navigate economic challenges, and manage working capital efficiently. Pricing Pressures and Foreign Exchange Dynamics: Impact of Global Market Trends During 1H FY25, SunRice encountered several external challenges, including competitive pricing pressures and currency fluctuations that impacted revenue and profitability. Northern Hemisphere Rice Supply and Pricing: Ample rice supply in the Northern Hemisphere led to pricing deflation in certain markets, including the U.S. and global tender markets. SunRice saw reduced pricing in its rice exports, particularly from the Rice Pool segment, contributing to a slight downturn in overall Group revenue. Currency Fluctuations: The depreciation of the Papua New Guinea Kina (PGK) against the AUD had a significant impact on SunRice’s revenue from its Trukai business in Papua New Guinea. This foreign exchange headwind resulted in lower AUD-converted revenues from PGK-denominated sales. Pricing Strategy: In response to inflationary pressures and higher global rice prices, the Group implemented pricing strategies aimed at absorbing some of these cost increases. The ongoing depreciation of the PGK against the USD and the global rice price increase due to India’s export ban on non-Basmati rice varieties were factors the company actively addressed in its pricing models. Profitability Amidst External Pressures: Cost Control Measures Pay Off Despite these external pressures, SunRice successfully managed to improve its overall profitability in 1H FY25. Key drivers of profitability include: Improved Product Mix: The Group benefited from a better product mix, particularly in segments like Rice Food and Riviana Foods, which helped improve margins despite lower revenue in some areas. Cost Savings Programs: SunRice executed a variety of cost-saving initiatives, such as optimizing raw material usage, reducing logistics and distribution costs, and leveraging direct procurement savings. These initiatives contributed significantly to margin improvement across key business units. Manufacturing Efficiencies: The Group continued to focus on improving manufacturing efficiencies, which helped offset some of the pricing pressures and allowed for better management of costs. Outlook for 2H FY25: Managing Challenges with Strategic Focus Looking ahead to the second half of FY25, SunRice expects revenue to remain broadly consistent with FY24. However, the Group anticipates moderate growth in EBITDA due to continued improvements in margins and operational efficiencies. Key factors influencing the second half include: Geopolitical and Market Pressures: Ongoing geopolitical tensions, particularly in the Middle East, may impact shipping and sales opportunities. Additionally, competition from lower-priced offerings in international markets, along with the impacts of Northern Hemisphere rice availability, will continue to challenge the Group. CY24 Paddy Price and Crop Outlook: The Group has updated its CY24 paddy price range to $380 to $420 per tonne, reflecting the challenges of a smaller-than-expected crop and lower whole grain mill-out rates. Despite these challenges, SunRice remains focused on maximizing opportunities from a weaker AUD against the USD to minimize the impact on grower returns. Sustainability and Strategic Initiatives: As part of its 2030 Growth Strategy, SunRice has committed to sustainability initiatives, including reducing emissions and building a more resilient, traceable supply chain. The company is making significant strides toward achieving net-zero emissions by 2050 and is developing a Net Zero Roadmap, which will be published in June 2025.

The Group declared an interim dividend of 15 cents per B Class Share for 1H FY25.