Summary

• Suria Capital Holdings Bhd’s (SURIA) 3QFY22 net profit improved 81.3% YoY to RM18.8m, driven by higher contribution from the port operation segment. Revenue for the quarter rose 23.8% YoY to RM73.4m.

• For 9MFY22, cumulative net profit added 10.5% YoY to RM39.9m. The reported earnings make up to 86.8% of our full year net profit forecast RM45.9m and 89.0% of consensus forecast of RM44.8m. The variance was attributable to the lower-than expected effective tax rate. Nevertheless, the reported pretax profit at RM49.8m came in line at 73.1% of our expected pretax profit of RM68.2m.

• In 3QFY22, SURIA handled a total of 125,441 (+32.6% YoY) TEUs. This brings 337,903 TEUs handled in 9M22, which makes up to 80.5% of our assumption of 420,000 TEUs for FY22f. Meanwhile, SURIA’s total tonnage handled was at 17.5m tonnes in 9M22; which was slightly below our expectations of 25.5m for the year.

• SURIA stands as of the biggest beneficiaries under the previous tabling of Budget 2023. Recall that the Federal Government has allocated RM250.0m to fund the expansion of the Sapangar Bay Container Port (SBCP). Upon completion tentatively in February 2025, the aforementioned port will be able to handle 1,250,000 twenty foot equivalent units, from 500,000 at present. Meanwhile, the construction of a new jetty at Sapangar Bay Oil Terminal is on track for completion in 4Q22.

• On the property development segment, Phase 2 of Jesselton Quay Central (JQC) project will see works commencement at end-2022 and will be completed in 2030. We are sanguine on the project that saw Phase 1 having impressive take up rates.

• Meanwhile, the rising foreign direct investment (FDI) and domestic direct investment (DDI) at Sabah amounting to RM7.75bn as of September 2022 (RM4.47bn in 2021) bodes well to bridge the gap of trade imbalances. Amongst the major investors include South Korea’s SK Nexilis Malaysia Sdn Bhd as well as a solar glass production facility at Kota Kinabalu Industrial Park (KKIP) that is under construction and is expected to be complete in June 2023.

Valuation & Recommendation

• With the reported earnings coming above expectations, we raised our earnings forecast by 8.9% and 8.7% to RM50.0m and RM51.9m for FY22f and FY23f respectively, adjusting for the lower effective tax rate. Following the earnings revision, we maintained HOLD on SURIA with a slightly higher target price of RM1.16.

• 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 10.0%, terminal growth rate of 2.0%). 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 - 1 Dec 2022