• Suria’s 1Q19 revenue fell to RM69.3m (-19% qoq, -45.5% yoy) impacted by lower construction services revenue and throughput volume

• Despite lower revenue, net profit increased to RM15.7m (+96% qoq, +9.8% yoy) mainly due to lower operating expenditure and lower effective tax rate. Overall, results were in-line with our forecast at 26%

• Near-term prospect is challenging but long-term outlook brighter on Suria’s port and property development progressing as planned

• Maintain HOLD with a DCF-derived TP of RM1.53

Revenue dragged by lower throughput volume from port operations

Suria’s 1QFY19 revenue fell to RM69.3m (-19% qoq, -45.5% yoy) on lower construction services revenue from port operations segment as well as lower cargo and container throughput volume. Conventional cargo fell by 6% yoy to 7.7m MT mainly due to lower bulk oil, wood products and general cargo throughput. At the same time, container cargo registered a decrease in total TEUs handled to 89,642 units (-7% qoq, -0.5% yoy). Other segments registered negative growth yoy except for contract & engineering segment (+>100% yoy). This was mainly attributed to revenue recognition of RM4.3m from Railway upgrading project connecting Halogilat and Tenom for Sabah State Railway Department. (refer table 2).

Higher earnings due to lower opex and effective tax rate

Net profit increased to RM15.7m (+96% qoq, +9.8% yoy) – despite a fall in revenue – a result of overall lower operating expenditure as well as lower effective tax rate of 23% (-27.5ppts qoq, -5.6ppts yoy). Of note, higher effective tax rate in 4Q18 was due to adjustment made for under provision of deferred tax expenses for year 2018. Overall, NP margin increased to 24.6% (+13.2ppts qoq, +1.9ppts yoy).

Near-term prospect challenging but long term outlook

Challenging near-term outlook expected to remain on the back of possible slowdown in regional trade as well as dampened domestic and global economy. However, moving forward, renegotiation with China and resumption of the ECRL project provide for greater export of Malaysia’s commodities especially palm oil to that country, in our view. A better long-term prospect is anticipated on port upgrading and infrastructure development, Federal Government’s commitment to transform Sepangar Bay Container Port into a transhipment hub as well as property segment development progressing as planned.

Maintain HOLD with unchanged TP of RM1.53

We maintain HOLD recommendation at this juncture with DCF-derived TP of RM1.53 (WACC: 8.8%) on concerns regarding challenging near-term outlook. Our TP implies a FY19F PE of 9.1x (about the same with Suria’s 3-year historical average) which we see as fair.

Source: BIMB Securities Research - 21 May 2019