This article first appeared in The Edge Malaysia Weekly on August 5, 2024 - August 11, 2024

Suria Capital Holdings Bhd (KL:SURIA) is in an exciting period. Taking a departure from conventional strategies to grow its business, the Sabah state-controlled group that manages the state’s eight major ports is seeking collaborative partnerships with companies to give the group a much-needed boost to take it to a new level of growth.

It kicked off 2024 on a positive note, posting 40% year-on-year (y-o-y) growth in its first-quarter net profit.

The group reported a net profit of RM14.86 million in the January-to-March quarter of the current financial year 2024 (1QFY2024) versus RM10.63 million in 1QFY2023, on higher contribution from the port operations segment. Revenue rose 25% y-o-y to RM73.83 million, from RM63.95 million.

It is now anticipating strategic ventures such as the partnership between its wholly-owned subsidiary Sabah Ports Sdn Bhd and Dubai’s ports giant DP World to propel its business growth this year.

In January 2023, the Sabah Cabinet cleared the path for Suria to enter into a strategic collaboration with DP World to make Sapangar Bay Container Port (SBCP) a regional trade hub with enhanced international connectivity. This is in line with Suria’s Strategic Plan 2024-2028, which includes forging collaborative partnerships to create synergy and drive growth in the group’s core business segments.

In a June 20 statement issued following the group’s annual general meeting, Suria said it viewed the collaboration with DP World optimistically, as Sabah Ports leverages DP World’s global expertise in managing ports and building supply chain networks to help optimise SBCP’s operations and potentially catalyse increased trade through Sabah.

Suria also hopes to make waves in the property development sector through its joint-venture initiatives with SBC Corp Bhd (KL:SBCCORP) and Bedi Development Sdn Bhd, a subsidiary of Exsim Development Sdn Bhd. To leverage and enhance the value of its land assets in the CBD, adjacent to Kota Kinabalu Port, the group has diversified its business into property development.

Suria recently finished Phase 1 of the 16.25-acre Jesselton Quay mega-development project dubbed Q Central, which was developed in collaboration with SBC. It is now embarking on the second phase of the project, featuring hospitality towers, high-end residences and a low-rise heritage precinct featuring retail shops, which Suria will co-own with SBC. The project is slated to commence construction this year and expected to be completed in 2032.

Meanwhile, Suria and Bedi Development will jointly develop a mixed commercial project on land in the Kota Kinabalu Port area. The project, to be named Jesselton Docklands, will have a net development value of RM4.2 billion and comprise an international cruise terminal, commercial suites, serviced apartments, retail outlets, offices, SoHo units and hotels.

Still, port operations will remain the primary revenue generator for the group. In 2023, this segment accounted for 87.7% of the total revenue of RM278.36 million.

The group’s net profit grew at a compound annual growth rate of 1.4% over the past three years. Its net profit grew from RM32.9 million in FY2020 to RM39.5 million in FY2021 and RM50.6 million in FY2022, but dropped to RM34.3 million in FY2023.

Suria adopts a policy of paying out up to 35% of its full-year net profit as dividends. Its dividend per share stood at four sen for FY2022 and 3.5 sen for FY2023, translating into a payout ratio of 35% and 27% respectively.

Suria’s share price rallied from RM1.007 (adjusted) at end-March 2021 to RM1.088 a year later, rising further to RM1.177 by March 2023. On the back of positive news flow, the stock surged 89% to RM2.22 as at March 31 this year — the cut-off date for The Edge Malaysia Centurion Club Corporate Awards 2024 — bringing its market capitalisation to RM767.7 million.

The share price gains from March 2021 to March 2024 translated into an adjusted returns of 24.12% over the three-year period, making Suria a winner of the Highest Returns to Shareholders Over Three Years award in the transport and logistics sector.

Suria’s weighted return on equity (ROE) over three years stood at 3.7%, according to The Edge Malaysia Centurion Club’s methodology. Last year, its ROE came in at 3.1%, compared with 4.69% in FY2022 and 3.65% in FY2021.

In a May 27 report, AmInvestment Bank maintained a “buy” call on Suria, with an unchanged fair value of RM2.55 per share, implying a forward price-earnings ratio for FY2025 of 14 times, which is 7% below its five-year peak of 15 times.

The research firm views the group’s collaboration with DP World positively, as Sabah Ports stands to gain from DP World’s global expertise and supply chain network. The agreement is anticipated to be completed in the third quarter of FY2024, subject to the fulfilment of terms and conditions.

“The key catalyst for Suria would be higher port tariffs, which have been unchanged over the past 35 years. The state Cabinet has approved the review of tariff rates in 2020, with implementation expected to take place this year,” said AmInvestment Bank.

The Sabah government has a 50.73% shareholding in Suria Capital via Qhazanah Sabah Bhd (45.397%), Yayasan Sabah (3.668%) and Chief Minister, State of Sabah (1.665%).

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