SURIA CAPITAL HOLDINGS - Mount Ruang Eruption: Business as Usual

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  • Mount Ruang, a stratovolcano in North Sulawesi Province, erupted several times in Indonesia's outermost region since Tuesday. The first eruption of the 725-metre-high mountain occurred on Tuesday and 4 times throughout Wednesday.
  • Mount Ruang is situated 800km from Malaysia. Following the eruption, volcanic ash clouds have been observed within the Kota Kinabalu Flight Information Region (FIR) and is seen as a significant risk to aircraft safety. At 6.00am, the Malaysian Meteorological Department issued a Significant Meteorological (SIGMET) 1, indicating ash clouds moving westerly at a speed of 30 knots from the surface to 55,000 feet and intensifying.
  • Due to the volcanic eruption, Malaysia Airlines and AirAsia announced flight cancellations to East Malaysia due to the Mount Ruang eruption.
  • As at 5pm yesterday, 16 stations in Sabah and Sarawak reported healthy Air Pollutant Index readings below 50. Only 5 stations recorded moderate levels below 100. The following hour at 6.30pm, a Malaysia Airlines flight to Kuala Lumpur was believed to be the first to take off from KKIA at around 6.30pm. Additionally, AirAsia has also resumed flights travelling from various locations in the country. It is believed that volcanic ash clouds began to clear from the Sarawak region around 7pm and completely dispersed over the entire island of Borneo by 10pm.
  • Volcanic ash can pose various challenges to marine transportation. Volcanic ash can quickly clog air intake filters, severely reducing airflow to essential machinery onboard ships. The abrasive nature of ash particles can cause significant damage to an engine's moving parts if they infiltrate the system. Ships need to be cautious and prepared when navigating areas affected by volcanic eruptions to avoid these potential hazards.
  • At this juncture, management guided no disruptions to shipping activities. Sabah port is operating as usual. There were no shipping cancellations nor diversion of shipping arising from the situation. Nevertheless, we will be keeping a close eye on the latest developments at the port.
  • We maintain BUY on Suria Capital with an unchanged DCF-derived fair value (FV) of RM2.55/share. A key catalyst for Suria would be the revision of port tariffs, which have been unchanged in the past 35 years.
  • Suria currently trades at a bargain FY24F PE of 12x, below Westports’ 16x, and offers a fair dividend yield of 4%.

Source: AmInvest Research - 19 Apr 2024

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