Investment Highlights

• We maintain HOLD on Suria Capital (Suria) with a lower DCF derived fair value (FV) of RM1.00/share (vs. RM1.05/share). Our FV implies FY23F PE of 8.1x and an unchanged 3-star ESG rating.

• We reduce our core net profit forecasts for FY22F by 8%, and FY23F–24F by 5% as our throughput growth assumption has been fine-tuned to account for inflationary and recessionary fears. Additionally, we reduce our margin assumptions to take consideration of higher costs resulting from fuel and labour.

• Suria’s 1HFY22 CNP of RM21mil was below expectations, accounting for 43% of our FY22F earnings and 45% of consensus estimates. The deviation came largely from higher-than-expected fuel and labour costs.

• Suria’s operating revenue grew 7% YoY in 1HFY22 mainly due to an increase in container throughput. This partly compensated for a decrease in cargo throughput. Nevertheless, CNP fell 20% YoY to RM21mil in 1HFY22 due to higher fuel and labour costs.

• In 1HFY22, container throughput volume rose 5% YoY to 212K TEUs, making up 54% of our FY22F assumption. Meanwhile, cargo throughput slid 4% YoY to 11.4mil MT, accounting for 46% of our FY22F estimate.

• Although Suria said its container throughput has improved in July 2022, we are cautious on the outlook for FY23F due to the ongoing disruption in supply chains and macroeconomic headwinds. As such, we maintain our assumption for throughput growth of 1% for FY22F and 3% for FY24F, but lowered 2% to 1% for FY23F.

• QoQ, Suria’s 2QFY22 operating revenue slipped by 2% due to lower cargo throughput (-10% QoQ). Together with higher costs of fuel, labour and interest expense, CNP halved QoQ.

• Despite the short-term headwinds, we are optimistic on the long-term outlook for Sabah ports supporting 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 Sapangar Bay Container Port as a premier transhipment hub for the BruneiIndonesia-Malaysia-Philippines East ASEAN growth area.

• We believe potential rerating catalyst could come from a revision on port tariffs, which was unchanged over the past 35 years. Suria is currently trading at a fair FY23F PE of 8.1x, although 1 SD below its 5-year mean, due to concerns over inflationary and recessionary impact to trade flows.

Source: AmInvest Research - 24 Aug 2022