Summary

• Suria Capital Holdings Bhd’s 4QFY21 net profit fell 41.7% YoY to RM2.8m, mainly dragged down by the higher recognition of deferred tax expenses at RM5.9m for the land disposals in 2013 and 2015 respectively. Revenue for the quarter, however, rose 19.2% YoY to RM68.5m.

• For FY21, cumulative net profit gained 17.9% YoY to RM38.8m. Revenue for the year added 10.3% YoY to RM244.8m. The reported earnings came below expectations as it only makes up to 69.8% of our full year net profit forecast RM55.6m. While the topline is largely in line with our expectations of RM254.3m, the bottomline’s deviation is largely due to higher-than-expected finance cost and tax expenses.

• In 4QFY21, Suria handled a total of 101,311 (+6.9% YoY) TEUs, bringing 12MFY21 TEUs at 397,346 which was higher than our assumption of 375,000 TEUs amid the strong rebound in port activities. Meanwhile, Suria’s total tonnage handled rose 6.3% YoY to 6.8m tonnes, bringing 12MFY21 total tonnage to 24.7m; in line with our expectations of 25.0m for the year.

• Moving forward, we expect total tonnage to record at 25.5m tonnes in FY22f. Following the re-opening of economic activities, the construction of a new jetty at Sapangar Bay Oil Terminal (SBOT) is largely on track for completion in subsequent months. The move will boost the capacity to undertaking additional port activities as current utilisation rate is averaging at close to 90.0%.

• Elsewhere, the relatively large-scale expansion of the Sapangar Bay Container Port (SBCP) that is expected to be completed by end-2024 will boost existing capacity of 500,000 TEUs to 1,250,000 TEUs per annum. The move viewed to be timely as Suria will necessary port facilities to support the downstream activities and the import and export of raw materials and finished products from the the development of Sabah Maju Jaya Renewable Energy Industrial Complex at Sapangar Bay.

• On the property development segment, the occupation certificate (OC) for the current phase (Phase 1) of Jesselton Quay Central (JQC) project is expected to be obtained in 1Q22.

Valuation & Recommendation

• Given that the reported earnings came below expectations, we revised our forecasted net profit lower by 14.4% and 12.5% to RM54.3m and RM56.0m for FY22f and FY23f respectively amid the margins compression. Given the recent share price appreciation, we think that valuations are now fair and we downgrade Suria to Hold (from Buy) with a lower target price of RM1.20 (from RM1.28).

• We value Suria through a sum-of-parts (SOP) approach as we valued both its port operations and property development segments on a discounted cash flow approach (key assumptions include a WACC of 8.5%, terminal growth rate of 5.0%) to reflect its ability to generate recurring revenues and steady earnings growth over the longer term. Meanwhile, we ascribed a 10.0x (unchanged) target PER to both its logistics and bunkering contracts as well as engineering and ferry terminal operations businesses, based on their potential earnings contribution in FY22f.

• Risks to our recommendation include dependency and sensitivity to commodity prices (mainly crude oil and crude palm oil). The port operation business is highly regulated by the State and Sabah Ports Authority that requires a number of approvals, licenses, registrations and permits from various regulatory authorities.

Source: Mplus Research - 1 Mar 2022