• Suria’s 9MFY18 core net profit of RM45m (+7% yoy) was due to higher operational revenue especially in port and contract & engineering segment. Overall, results were in-line with our forecast at 81%

• 3QFY18 core net profit increased 1.9% qoq due to lower effective tax rate by 5.1 ppts despite registering lower revenue by 11% due to lower conventional throughput handled

• Maintain HOLD based on unchanged DCF-derived TP of RM1.75

Higher 9MFY18 core net profit in-line with our forecast

Suria’s 9MFY18 operation revenue (ex. construction revenue) of RM193.7m grew 12.4% yoy mainly contributed by higher port operations and contract & engineering segment. The increase in port revenue (94% of total revenue) was due to higher conventional cargo throughput of 23.2 million MT (+4% yoy) and container cargo of 286,388 TEU (+9% yoy). As for contract & engineering segment, the increase was due to revenue recognition amounted to RM7.3m from railway upgrading project. Core net profit increased by 7% yoy to RM45m from RM42m (ex. impairment of trade receivable worth RM10.8m due to revisions of estimate cash flow in 3QFY17) but was partially offset by overall higher port operating expenditure. As a result, core net profit margin dropped 1.2ppts yoy. We estimate FY18 margin to remain at current levels on higher opex due to its port expansion. Overall, Suria’s 9MFY18 core net profit was in-line with our full year forecast at 81%.

3QFY18 performance improved due to lower effective tax rate

Core net profit for 3QFY18 increased to RM15.5m (1.9% qoq, 9.3% yoy) mainly due to lower effective tax rate of 18.3% (-5.1 ppts qoq) despite lower operating revenue registered. The lower operating revenue of RM61.5m (- 11% qoq, -2% yoy) was due to lesser conventional cargo throughput handled of 13%, mainly attributed to the lower palm oil and fertiliser throughput.

Outlook remains challenging

Outlook for the near to mid-term is expected to be challenging as the Malaysia’s GDP growth is slowing whilst global prices for crude oil and palm oil are falling. Nevertheless, the group’s long term outlook is more constructive with port infrastructure development as well as Suria’s property segment development progressing as planned. The recent review of the 11MP by the federal government has also maintained allocation for Sepangar Bay Container Port to be transformed as a transhipment hub.

Maintain HOLD with unchanged TP of RM1.75

Our earnings forecast remain unchanged. Maintain HOLD recommendation with DCF-derived TP of RM1.75 (WACC: 8.6%). Risks to our call are higher than expected throughput handled and susceptibility to prices of major export items such as crude oil and palm oil.

Source: BIMB Securities Research - 16 Nov 2018