Summary

• Suria Capital Holdings Bhd’s (SURIA) long term prospects are expected to be supported by the (i) on-going ports expansion plans, (ii) higher domestic and international tourists’ arrivals, (iii) commencement of the second phase of the Jesselton Quay project. We reckon that cargo volume, tonnage handled and containers of twenty-foot equivalent units (TEUs) will continue to be supported by gradual improvement in economic activities.

• We believe that the port operation, particularly Sapangar Bay Container Port (SBCP) will ride on the relocation of manufacturing plants by multinational companies out of China to Southeast Asia as a result from the US-China trade diversion. This is in line with SURIA’s objective in transformation into a key transhipment hub for the Brunei-Indonesia-Malaysia-Philippines East ASEAN region.

• Still, challenges remain, owing to the rising Malaysia palm oil inventory level for the third straight month in July 2023 (+0.7% MoM) to 1.7m tonnes as reported by the Malaysia Palm Oil Board (MPOB). Despite palm oil exports rose 15.6% MoM as demand has picked up ahead of the Deepavali festive season, the stronger supplies continue to keep inventory remain at the higher end. Hence, we expect the ports operations segment which heavily relies onto palm oil products may remain flattish.

• SURIA has now commenced negotiation with the Sabah state government to extend the concession by another 30 years from 1st September 2034 to 31st August 2064. This will re-inforce their prospect of long-term income, whilst the prospects of overdue ports tariff revision will be another positive game changer for the group Despite that, we are ceasing coverage on SURIA due to reallocation of internal resources.

• Our last recommendation on SURIA was HOLD with a fair value at RM1.20. The fair value was derived by sum-of-parts (SOP) sum-of-parts (SOP) approach as we valued both its port operations and property development segments on a discounted cash flow approach (key assumptions include a WACC of 15.0%, terminal growth rate of 3.0%). Meanwhile, we ascribed a 10.0x target PER to both its logistics and bunkering contracts as well as engineering and ferry terminal operations businesses, based on their potential earnings contribution in FY23f.

Source: Mplus Research - 16 Aug 2023