• Suria Capital Holdings (Suria) entered into a joint development agreement (JDA) with Jesselton Docklands 1 Sdn Bhd, a JV between Suria and BEDI Development (BEDI), to develop 6.3 acres land parcel in Kota Kinabalu.

• Recall that in early February 2024, Suria and Exsim’s BEDI agreed to establish 2 joint venture companies i.e. Jesselton Docklands 1 and Jesselton Docklands 2, to develop 2 land parcels. Land 1 consists of 6.3 acres while Land 2 encompasses 28.9 acres. Both are located on Jalan Tanjung Lipat in Kota Kinabalu .

• The Jesselton Docklands 1 project will be executed in 3 phases, each featuring various commercial buildings:
  
  Phase 1 – A 3-floor commercial shop lot, a 1-floor mixed-retail space, a 7-floor office tower and two 25-floor commercial suite towers with 568 and 463 units.
  
  Phase 2 – A 2-floor commercial shop lot with mezzanine and a 29-floor commercial suite tower with 437 units.
  
  Phase 3 – A 2-floor commercial shop lot with mezzanine, a 7-floor hotel tower and a 21-floor commercial service suite tower with 251 units.
   
• As the land owner, Suria is projected to receive an estimated entitlement no less than RM180mil, which accounts for 18% of the project's estimated net development value (NDV) of RM1bil. The entitlement will be delivered through a combination of RM45mil in cash and RM135mil in in-kind contributions.
   
• This entitlement translates to 26% of Suria’s market cap of RM681mil. If the NDV for Land 1 exceeds RM1bil, Suria Capital will receive any excess and paid in-kind with retail units, car parks and other commercial components on Land 2 (excluding Airbnb units).

• We believe that the gestation period for this project would be long as Kota Kinabalu has a small population size of 589k compared to Klang Valley's 9mil.

• The Jesselton Docklands 1 project is anticipated to be completed within 6 years from the unconditional date of JDA 1, which is the date when all conditions precedent are fulfilled during a 12-month period. Therefore, we maintain our earnings forecast for now until the JDA becomes unconditional.

• We maintain BUY on Suria Capital with an unchanged DCF-derived fair value (FV) of RM2.55/share (WACC: 7.5%, TG: 6%). Suria currently trades at an undemanding FY25F PE of 11x, below its 5-year peak of 15x, and offers a decent dividend yield of 3%.

Source: AmInvest Research - 6 Jun 2024