SURIA is vastly undervalued, underpinned by its stable and lucrative port concession (until 2034) in Sabah. Furthermore, we see deep value in its prime landbank near Kota Kinabalu port, earmarked to transform itself into major property development and Sabah tourism force in the long term through the iconic Jesselton Quay waterfront and One Jesselton Waterfront projects. SURIA’s risk-reward profile is attractive as it is only trading at 5.7x FY20 P/E (74% discount to its peers and 62% to 10Y mean) and 0.3x P/B (91% to peers and 50% to 10Y mean), supported by its RM86m net cash (RM0.25 or 26% of share price) and a handsome dividend yield of 6.3% (94% higher than peers). In the wake of tapering selling pressures after Urusharta ceased to be a substantial shareholder, SURIA is expected to challenge higher resistances at RM1.01-1.18 in the mid to long term, following a positive neckline resistance breakout on 30 Apr.

Exclusive port concessionaire in Sabah, SURIA is a Sabah-state owned investment holding company which is involved in four business segments, namely port operations, logistics & bunkering services, contract engineering, and property development & ferry terminal. SURIA operates 8 major ports in Sabah, namely: i) Kota Kinabalu Port, ii) Sapangar Bay Oil Terminal, iii) Sandakan Port, iv) Lahad Datu Port, v) Kunak Port, vi) Kudat Port, vii) Tawau Port and viii) Sapangar Bay Container Port.

SURIA was originally established as a financial conglomerate. In 2004, the group shifted its business focus to port services following a major restructuring. During that corporate exercise, SURIA acquired the business operations of Sabah’s key ports from Sabah Ports Authority via a major privatization exercise. The terms of the privatization agreement come with a 30-year port concession until 2034.

Property development, In 2013, SURIA entered into a JV agreement with SBC Corporation to develop the Jesselton Quay development project near a 16.3 acres prime landbank in Kota Kinabalu Port. The first phase of the Jesselton Quay development known as Jesselton Quay Central (JQC), is progressing well with completion expected by 1Q2021. At the same time, the JQC development is expected to pick-up from the progress billings, which would cushion the potential weakness from the ports segment, arising from the Covid-19 outbreak.

SURIA’s 2nd property development project i.e One Jesselton Waterfront (1JW) is a JV with Gabungan AQRS Berhad in 2015 to develop the 6.25 acre-land near KK Port (to commence construction by end 2020 or early 2021). As a landowner, SURIA will receive a minimum guaranteed cash return in both project developments. The mixed developments will include service suites, apartments, condo residences, a recreation club, hotels, commercial gallery shops, retail malls, car park facilities, a ferry ticketing office, and SURIA’s corporate headquarters office. Once completed, both JQC and 1JW projects are expected to complement developments in the vicinity such as Sabah International Convention Centre and Kota Kinabalu Convention City.

Positive neckline resistance breakout. After sliding 43% from a 52-week high of RM1.45 to a low of RM0.82 (19 Mar), the stock is steadily trending higher above 10D/20D/30D SMAs and ended at RM0.96 on 30 Apr (above the neckline resistance near RM0.925), supported by a high volume of 3.8m (6.3x higher than 90D avg). Following the cessation of Urusharta Jamaah as a substantial shareholder on 24 Apr and the remaining 14m outstanding shares could have been exhausted by now, and SURIA is expected to climb further to the RM1.01 (50D SMA) levels. Breaking this hurdle will spur prices towards RM1.11 levels (50% FR) and our LT target at RM1.18 (61.8% FR). Supports are pegged at RM0.90-0.925 zones. Cut loss at RM0.87.

Source: Hong Leong Investment Bank Research - 4 May 2020