Suria Capital’s 9M14 numbers came in largely within expectations and we believe 4Q14 may be better. We keep our BUY recommendation with an  unchanged  DCF-based  MYR3.50  TP,  a  35.7%  upside.  Heightened operating  expenses  have  offset  the  growth  in  revenue  and  the Jesselton  Quay  project  may  need  more  time  to  realised.  However,  we understand that it is still in progress.   
 
Results  in  line.  Suria Capital’s 9M14  net  profit  dropped  1.5%  YoY  to MYR45.5m.  This  was  largely  within  our  estimates, meeting  71%  of  our full-year  forecast.  The  9M14  numbers  were  mainly  lifted  by  higher contribution  from  its  port  operations  core  business,  and  logistics  and bunkering  services  segments.  The  rise  in  operating  expenses  has affected its overall profit margin.

Segmental overview. Within the ports operations division, there was a 9%  YoY  increase  in  the  total  20-foot  equivalent  units  (TEUs)  in  9M14. However,  9M  operating  expenses  increased  12%  YoY  on  higher depreciation, maintenance costs, port land leasing fees and labour costs, which  correlated  with  the  higher  volume.  Logistics  and  bunkering improved YoY, reporting a profit instead of losses. This was mainly on a fuel  volume  sales  increase  for  the  supply  of  bunkering  fuel  for  cruise ships at Kota Kinabalu Port. This wing also resumed its heavy lifting and shuttling business with the commencement of the Sabah Ammonia Urea 
(SAMUR)  project  which  is  currently  at  the  completion  stage.  Ferry terminal operations’ topline improved, mainly contributed by the increase in passenger fee income from the new international cruise terminal  and increased tourist arrivals in Sabah. Contract and engineering still did not do well on a lack of major external projects.   

Jesselton Quay  update.  Suria  Capital is 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 MYR3.50  TP unchanged,  which  implies  14x  FY15F  P/E. We  deem  this fair,  given  Suria Capital’s  property  joint-venture.  The  port  segment’s average P/E is 14x.

Financial Exhibits

Financial Exhibit

SWOT Analysis

Company Profile

Suria Capital’s core business is operating the eight major ports in Sabah, namely Kota Kinabalu Port, Sapangar Bay  Oil  Terminal, Sandakan  Port,  Lahad  Datu  Port,  Kunak  Port,  Kudat  Port, Tawau  Port  and  Sapangar  Bay  Container  Port.  The  group also  operates other businesses, such as equipment supply and maintenance, logistics and bunkering services, contract and engineering, and ferry terminal operations. Suria Capital is looking for opportunities to diversify its operations into the property and tourism sectors as well. 

Recommendation Chart

Source: RHB