Summary

• Suria Capital Holdings Bhd’s (SURIA) 2QFY22 net profit fell 57.1% YoY to RM7.2m, impacted by higher operational cost and administrative expenses. Revenue for the quarter decreased 7.5% YoY to RM57.7m.

• For 1HFY2, cumulative net profit slipped 18.1% YoY to RM21.1m. The reported earnings only make up to 38.8% of our full year net profit forecast RM54.3m and 46.0% of consensus forecast of RM45.9m. The variance was attributable to the higher-than-expected amortisation of their concession assets.

• In 2QFY22, SURIA handled a total of 110,865 (+2.6% YoY) TEUs. This brings 1HFY22 to 212,462 TEUs handled, which accounts to 50.9% of our assumption of 420,000 TEUs for FY22f. However, Suria’s total tonnage handled declined -4.0% YoY to 11.4m tonnes in 1HFY22; which fell short of the expectations of 25.5m for the year. The decline was due to lower bulk oil, palm oil and fertiliser throughput.

• The construction of the second jetty at Sapangar Bay Oil Terminal (SBOT) is largely on track for completion in 4Q22 in bid to ease the current congestion and reduce vessel waiting time. Upon completion, SBOT will be able to handle 2 vessels at the time and accommodate vessels up to 60,000DWT (from 30,000DWT previously).

• Meanwhile, the relatively large-scale expansion of the Sapangar Bay Container Port (SBCP is expected see Phase 1 completion in 1Q25. This will boost existing capacity of 500,000 TEUs to 1,250,000 TEUs per annum. We gather that ground works at site have commenced since September 2021.

• On the property development segment, the Phase 1 of Jesselton Quay Central (JQC) project saw the Ground Floor are almost fully occupied with healthy mixture of tenants following the issuance of vacant possession on 23rd May 2022, while the 37 blocks of Gallery Shoppes are expected to be officially launch in September 2022. Consequently, Phase 2 comprising hospitality towers, high-end residences and low rise heritage precinct is expected to see the works commencement towards end- 2022 and will be completed in 2030.

Valuation & Recommendation

• With the reported earnings falling short of expectations, we trimmed our earnings forecast by 15.4% and 15.6% to RM45.9m and RM47.7m for FY22f and FY23f respectively, adjusting for the higher amortisation costs. Following the earnings revision, we maintained HOLD on SURIA, but with a lower target price of RM1.12.

• We adopted 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%). Meanwhile, we ascribed a 10.0x 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 FY23f.

• 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 - 24 Aug 2022