Suria Capital Holdings Bhd
1H15 net profit for Sabah ports operator Suria (Fundamental: 2/3, Valuation: 2.3/3) increased by more than three-fold from RM30.9 million to RM103.9 million, boosted by an extraordinary gain of RM112.5 million derived from the Jesselton Quay project. Its shares jumped 4% to RM2.08 after the company announced its 2Q15 results last Thursday.

Excluding revenue and profit from the Jesselton Quay project, however, revenue for 1H15 dropped 8.1% y-o-y to RM136.3 million while pre-tax profit declined 85% from RM42.4 million to RM6.4 million, primarily due to an impairment loss of RM20.3 million on port assets and provisions of RM13.5 million for share grant and ESOS expenses.

We believe its long-term cash-generating capability from its quality assets i.e. major ports in Sabah remains intact; the provisions may be related to corporate exercises such as rights issue to be carried out later this year.

To recap, Suria partnered with SBC Corp Bhd and Gabungan AQRS Bhd to develop the Jesselton Quay project — a waterfront mixed development project with total net sale value of RM2.9 billion — in Kota Kinabalu. In return for its land, Suria would receive a minimum guaranteed RM522 million over the 6-year development period.

Predominantly an import/export port operator, Suria’s cargo volume is closely correlated to Sabah’s economy and, in particular, palm oil exports. Revenue has been, historically, quite steady — fluctuating within a 10% band over past five years — as is gross margin, at over 40%.

The stock is trading at a trailing 12-month P/E of 4.6 times and 38% below book value of RM3.36 per share. Based on trailing 12-month EBITDA of RM204.1 million, EV/EBITDA stands at only 2.5 times, compared with Bintulu Port’s 8.2 times and NCB’s 14.6 times.

Suria has a minimum 35% dividend payout policy. Dividends totalled 7 sen per share in 2014, giving a decent yield of 3.4%.

This article first appeared in digitaledge Daily, on September 3, 2015.