Investment Highlights

• We maintain HOLD on Suria Capital with an unchanged DCF-derived fair value (FV) of RM1.15/share. Our FV implies a FY23F PE of 8.2x, which is near its 5-year average PE of 8.5x. There is no FV adjustment for ESG based on our 3-star ESG rating.

• FY22 core net profit (CNP) of RM49mil was within expectations, slightly above our FY22F earnings by 2% and consensus estimates by 4%.

• On a YoY basis, port operating revenue fell by 14% to RM52mil in FY22 due to lower cargo throughput (-6%). This coupled with lower net interest income resulted in a 17% drop in CNP in FY22.

• Meanwhile, 4QFY22 CNP halved QoQ to RM10mil, dragged by lower throughput in container (-11% QoQ) and cargo (-9% QoQ) segments. On a positive note, property development earnings grew 8x QoQ to RM21mil due to a one-off entitlement exchange in the form of car park units in the Jesselton Quay project.

• Looking ahead, we believe that Suria’s property development segment will continue to contribute positively as the second phase of Jesselton Quay Central (GDV of RM350mil) will be launched in 2HFY23. We are cautious on the outlook for the port operations due to global economic uncertainties.

• 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.

• A re-rating catalyst could come from a revision of port tariffs, which have been unchanged in the past 35 years.

• Suria currently trades at a fair FY23F PE of 8.4x, which is near its 5-year historical average of 8.5x.

Source: AmInvest Research - 1 Mar 2023