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 1HFY24 core net profit (CNP) of RM29mil was within our expectations and consensus estimates. Hence, we make no changes to our forecasts.

• YoY, Suria’s 1HFY24 core net profit (CNP) rose 1.2x to RM28.7mil from RM13mil in 1HFY23 due to a 14% topline growth and higher net interest income.

• YoY, Suria’s port operating revenue grew 11% in 1HFY24 due to increased throughput for containers (+15%) and cargo (+5%). The higher throughput 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 accounted for 90% of 1HFY24 total revenue.

• Ferry terminal operations rose 26% to RM3.0mil in 1HFY24 from RM2.4mil in 1HFY23 on the back of higher domestic and international tourist arrivals. The cruise industry is experiencing a substantive recovery as cruise lines return to the region.

• On a quarterly basis, Suria’s 2QFY24 CNP remained flat at RM14mil. Revenue rose 7% QoQ due to increased port operating revenue (+4% QoQ) and construction services (+44% QoQ). However, net profit was affected by higher cost of sales (+13% QoQ) and depreciation cost (+3% QoQ).

• To recap, Suria has entered into a conditional share subscription agreement with DP World. We positively view the collaboration as Sabah Ports will benefit from DP World’s global expertise and supply chain network. The agreement is anticipated to be completed by end- September 2024, subject to the fulfillment of terms and conditions.

• Even so, 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 11x, below its 5-year peak of 15x.

Source: AmInvest Research - 2 Sep 2024