Investment Highlights

• We maintain BUY on Suria Capital with an unchanged DCF- derived fair value (FV) of RM2.55/share (WACC: 7.5%, TG: 6%). Our FV implies a FY25F PE of 14x, which is 7% below its 5-year peak of 15x. There is no FV adjustment for ESG based on our neutral-3-star rating.

• Suria’s 1QFY24 core net profit (CNP) of RM14mil was within our expectations and consensus estimates, accounting for 25%-27% of our full-year forecast and street’s. Hence, we make no changes to our forecasts.

• YoY, Suria’s 1QFY24 core net profit (CNP) rose 43% from RM10mil in 1QFY23 due to a 15% topline growth.

• YoY, Suria’s port operating revenue grew 11% in 1QFY24 due to increased throughput for containers (+19%) and cargo (+4%). This can be attributed to incremental container traffic from customers, Kibing Solar and SK Nexilis, which began operating at partial capacity at the end of 2023. Also, there was improved throughput for bulk oil, fertiliser, wood products and general cargo. Port operations account for 87% of 1QFY24 total revenue.

• Ferry terminal operations rose 30% to RM1.6mil in 1QFY24 from RM1.2mil in 1QFY23 on the back of higher domestic and international tourist arrivals. The cruise industry experienced a revival in 2023 as cruise lines gradually returned to the region. Sabah recorded a surge in tourist arrivals, amounting to 2.6mil in 2023, which is a 51% increase from 2022.

• On a quarterly basis, Suria rebounded to a 1QFY24 core net profit from a slight loss in 4QFY23 due to a normalisation of amortisation charges, dropping by 67%. Recall that there were lumpy amortisation of concession assets and provision for replacement obligation in 4QFY23.

• To recap, Suria has entered into conditional share subscription agreement with DP World. We positively view the collaboration as the group’s wholly-owned Sabah Ports stands to gain from DP World’s global expertise and supply chain network. The agreement is anticipated to be completed in 3QFY24, subject to the fulfillment of terms and conditions.

• The key catalyst for Suria would be higher port tariffs, which have been unchanged over the past 35 years (since 1977). The state cabinet has approved the review of tariff rates in 2020, with implementation expected to take place in 2024F. Assuming a 10% rise in port service rates, we estimate that FY24F net profit could increase by 33%.

• Suria currently trades at an undemanding FY25F PE of 12x, below its 5-year peak of 15x, and offers a decent dividend yield of 3%.

Source: AmInvest Research - 27 May 2024