Investment Highlights

• We maintain HOLD on Suria Capital (Suria) with a higher DCF-derived fair value (FV) of RM1.15/share (vs RM1.00/share). Our FV implies a FY23F PE of 8x and an unchanged 3-star ESG rating.

• 9MFY22 core net profit (CNP) of RM39mil was above expectations as it accounted for 90% of our FY22F earnings and 87% of consensus estimates. The deviation was largely due to higher-than-expected container throughput volumes. As such, we raise our earnings for FY22F-24F by 9%.

• YoY, CNP grew 8% to RM39mil as operating revenue expanded by 13% to RM175mil on the back of stronger container volumes (+13%), partially weighed down by a dip in cargo volumes (-2%).

• QoQ, CNP improved by 2.7x to RM18mil in tandem with 15% operating revenue growth to RM64mil, supported by stronger container (+13%) and cargo (16%) throughput.

• According to Department of Statistics Malaysia, export volume shrank 8.7% MoM in Oct 2022 while import volumes were flat.

• We remain cautious on Suria’s short term outlook due to global recessionary risks and geopolitical tensions. Other risks include port congestions, which may depress throughput volume.

• Despite short term headwinds, we are optimistic on the long-term outlook for Sabah, which 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 the growth of Sapangar Bay Container Port as a premier transhipment hub for the Brunei-IndonesiaMalaysia-Philippines East ASEAN growth area.

• We believe rerating catalysts could stem from a revision of port tariffs, which was unchanged over the past 35 years. Suria currently trades at a fair 7.3x FY23F PE, near its 5-year historical average of 7.9x.

Source: AmInvest Research - 1 Dec 2022