Period  3Q14/9M14

Actual vs. Expectations Reported 3Q14 core net profit of RM14.6m, bringing its cumulative 9M14 core net earnings to RM45.5m. This is within our expectation at 71.8% of our full-year FY14 estimates but came slightly below street’s estimates at 69.9%.

Dividends  An interim dividend of 3.0 sen/share was declared, accounting for 40.5% of our full year dividend forecast (7.4 sen/share).

Key Result Highlights 3Q14 core profit declined by 8.2% QoQ mainly due to lower top line registered across all the business segments and lower margins of its core port operations (3Q14: 38.0% vs. 2Q14: 40.5%) due to higher depreciation and maintenance cost.

 In 3Q14, SURIA’s core net profit came in at RM14.6m, which is 18.5% lower YoY compared to the corresponding period mainly due to: (i) weaker container throughput (-2.0% YoY), (ii) increase in port expenses due to higher depreciation and maintenance cost, (iii) lower Contract & Engineering & Logistics & Bunkering segment contribution, and (iv) lower PBT margin for Ferry Terminal division (3Q14: 2.4% vs.3Q13: 38.5%) driven by higher operating cost for Kota Kinabalu International Cruise Terminal.

 Cumulative 9M14 core earnings stood at RM45.5m, which is 1.5% weaker YoY due to weaker performances of its Logistics & Bunkering and Contract & Engineering divisions due to lack of external contracts. This is partially offset by stronger YoY performance from its core port operations with PBT rising 1.6% YoY driven by 9.0% growth registered for container volume handled YoY.

Outlook  Port operations segment of the group is expected to remain fairly stable in the medium-term with consistent margins expected.

 Logistics & Bunkering and Contract & Engineering divisions are not expected to be the major growth drivers for the group as they are regarded as the support division to the core port operations.

 The upcoming catalyst will still be the upcoming RM1.8b Jesselton Quay property development project located at Kota Kinabalu port with SBCCORP (NOT RATED) as its partner. According to the management, the development plan for the project is still awaiting approval with December set as the target approval date.

Change to Forecasts We maintain our earnings forecasts as the results are in-line with expectations.

Rating Maintain call at OUTPERFORM

Valuation  Our DCF-derived TP is maintained at RM3.41.

Risks to our Call (i) Further delay in Jesselton Quay development plan approval

 (ii) Lower than expected cargo handled in the port operation operation division

Source: Kenanga