Investment Highlights

• We initiate coverage on Suria Capital Holdings (Suria) with a HOLD recommendation and DCF-based fair value (FV) of RM1.05/share. Our DCF-based fair value is based on WACC of 11% and terminal growth rate of 5%, implying a FY23F PE of 8.0x. We ascribe a 3-star ESG rating to Suria.

• Suria embarked on the business of Sabah port operations after the privatisation of the state’s ports from Sabah Ports Authority in 2004. Presently, Suria operates all 8 main seaports in the state with Sapangar Bay Container Port (SBCP) as the flagship port and main revenue generator.

• Suria is in the midst of expanding SBCP. Upon completion, SBCP’s port handling capacity will increase to 1.25mil TEUs per year, allowing Suria to further capitalise on the strategic location of SBCP in the BIMP-EAGA region. Suria intends to develop SBCP to be the region’s transhipment hub.

• As Suria monopolises port operations in Sabah, Suria is affected by the external trade of the state. Sabah’s key export is palm oil (26% of the country’s palm oil export) and crude oil (30% of the country’s crude oil export). In FY21, Suria handled 5.5mil MT containers (or 397K TEUs), and 24.7mil MT of conventional cargos (64% comprised palm oil and crude oil products).

• Suria’s FY23F PE of 8.0x currently is undemanding as we believe that the port industry would be facing geopolitical and macroeconomic headwinds amid the persistent Russia-Ukraine war, financial tightening in US, structural slowdown and worsening in supply-chain disruptions. As such, we forecast a modest annual throughput volume growth of 1% in FY22F, and 3% annually for FY23F and FY24F.

• On a positive note, Suria’s dividend yields are decent. Based on Suria’s dividend pay-out policy of 35%, we estimate dividend yields of 4.3% in FY22F, 4.4% in FY23F, and 4.5% in FY24F.

• In spite of short-term headwinds, we are optimistic on the long-term outlook for Sabah ports as the state is a key palm oil and crude oil producing state. Furthermore, the relocation of manufacturing bases by multinational companies out of China to Southeast Asia bodes well for SBCP as a premier transhipment hub for the BIMP-EAGA (Exhibit 30).

Source: AmInvest Research - 28 Jun 2022