Suria’s  1H14  came  in  within  expectations.  Most  business  divisions contributed  positively  to  the  group,  except  contract  and  engineering division.  Net  margins  softened  slightly  due  to  higher  operating expenses incurred, particularly from  its  ports’ operations, which was in tandem  with  the  volume  increase.  No  new  development  for  Jesselton Quay as yet. Maintain BUY, with FV MYR3.50 unchanged.

Within expectations.  Suria  Capital (Suria)’s MYR30.9m  1H14 net profit (+10.9% y-o-y)  came in within our and street  estimates, meeting 47% of our full-year forecast. 1H14  numbers were mainly lifted by the  strong 1Q but slowed down in 2Q due to higher operating expenses. Net margin in 1H  declined  slightly  by  0.7  ppts  y-o-y  on  higher  transshipment containers, which fetch a relatively lower margin.

Segmental overview.  For its ports,  total tonnage handled  decreased by 1% y-o-y in 1H  on lower palm oil throughput.  For  containers,  there was an  increase  in  the  total  20-foot  equivalent  unit  (TEU)  in  the  current quarter  (+10%  y-o-y)  and  a  15%  y-o-y  increase  in  1H14,  mainly attributed  to  the  higher  transshipment  volume.  However,  the  ports’  1H operating  expenses  were  higher  by  15%  y-o-y  on  higher  depreciation, maintenance  costs,  port  land  leasing  fees  and  labour  costs,  which correlated with the higher volume. Logistics and bunkering improved y-oy,  reporting  a  profit  instead  of  losses,  mainly  on  an  increase  in  fuel volume  sales  for  the  supply  of  bunkering  fuel  for  cruise  ships  at  Kota Kinabalu Port. This division also resumed its  heavy lifting and shuttling business  with  the  commencement  of  the  Sabah  Ammonia  Urea (SAMUR)  project.  Ferry  terminal  operations’  topline  improved  as  more revenue  was  generated  from  ferry  transportation  and  cruise  ship passenger fees, retail space rental and an indoor soccer centre. Contract and engineering did not do well, on a lack of major external projects. 

Jesselton Quay update.  Still awaiting the approval for  its development plan from the authorities to advance to  a  new phase. Nonetheless, we understand that the project is progressing as planned.

Maintain BUY  and earnings forecast.  We keep  our DCF-based FV of MYR3.50  unchanged.  Our FV  implies  14x  FY15F P/E,  which we deem fair, given its property joint-venture. The port sector’s average P/E is 14x

Source: RHB