KUALA LUMPUR (June 28): AmInvestment Bank has initiated coverage of Suria Capital Holdings Bhd at RM1.11 with a "hold" recommendation and discounted cash flow (DCF)-based fair value (FV) of RM1.05.

In a note on Tuesday (June 28), the research house said the DCF-based FV is based on weighted average cost of capital of 11% and a terminal growth rate of 5%, implying a price-earnings ratio (PER) of eight times for the financial year ending Dec 31, 2023 (FY23).

“We ascribe a three-star ESG (environmental, social and governance) rating to Suria,” it said.

AmInvestment said Suria embarked on the business of Sabah port operations after privatisation of the state’s ports by Sabah Ports Authority in 2004.

It said that presently, Suria operates all eight main seaports in the state with Sapangar Bay Container Port (SBCP) as the flagship port and main revenue generator.

The research house said Suria is in the midst of expanding SBCP, adding that upon completion, SBCP’s port handling capacity will be increased to 1.25 million TEUs per year, allowing Suria to further capitalise on the strategic location of SBCP in the BIMP-EAGA region.

“Suria intends to develop SBCP to be the region’s transhipment hub.

“As Suria monopolises port operations in Sabah, it is affected by the external trade of the state. Sabah’s key export is palm oil (26% of the country’s palm oil exports) and crude oil (30% of the country’s crude oil exports).

“In FY21, Suria handled 5.5 million MT of containers (or 397,000 TEUs) and 24.7 million MT of conventional cargos (64% comprised palm oil and crude oil products),” it said.

AmInvestment said Suria’s FY23 PER of eight times currently is undemanding as the port industry would be facing geopolitical and macroeconomic headwinds amid the persistent Russia-Ukraine war, financial tightening in the US, a structural slowdown and worsening of supply-chain disruptions.

“As such, we forecast a modest annual throughput volume growth of 1% for FY22, and 3% annually for FY23 and FY24,” it said.

“On a positive note, Suria’s dividend yields are decent. Based on its dividend payout policy of 35%, we estimate dividend yields of 4.3% for FY22, 4.4% for FY23 and 4.5% for FY24,” it said.

At 10.26am, Suria had shed 0.88% or one sen to RM1.13, with 4,300 shares traded.