MIDF Research maintains ‘sell’ recommendation on Suria Capital

Suria Capital Holdings Bhd’s partnership with DP World to manage Sapangar Bay Container Port (SBCP) gives it a chance to tackle Sabah’s high logistics costs.

MIDF Research said Sabah Ports Sdn Bhd grappled with trade imbalances, with outbound containers comprising only 30 per cent of laden boxes versus 70 per cent empty ones, primarily due to insufficient cargo-generating activities in the state.

“This collaboration presents an opportunity to tackle Sabah’s high logistics costs by building a robust shipping network and expanding the cargo base.

“The state was also considering the establishment of a free economic zone at Kota Kinabalu Industrial Park (KKIP), an area that aligns with DP World’s expertise and specialisation.

“However, it is important to note that the specifics of the partnership agreement, including the equity structure, have not been disclosed yet, as Suria Capital has not officially announced it.

“Clarity is needed on the concrete plans to attract significant foreign direct investments (FDIs) for its expanded capacity, considering the scenario where main line operators bypass Sabah Ports due to limited cargo volume. Historically, the port utilisation rate at SBCP ranged between 50 per cent to 60 per cent,” it said.

The partnership agreement was signed between Dubai-based DP World and Suria Capital’s subsidiary, Sabah Ports, which aims to solidify SBCP’s role as a key regional trade centre within East Asean, made up of Brunei, Indonesia and the Philippines.

MIDF Research maintained a positive outlook on this potential partnership, considering DP World’s position as the fifth largest global port operator, commanding an 8.9 per cent market share, with about 30 per cent of its revenue generated from containerised cargoes.

SBCP is undergoing a significant expansion project aimed at boosting its annual handling capacity from 0.5 million TEUs (twenty-foot equivalent units) to 1.25 million TEUs.

“In previous discussions with the management, it was noted that there might be a slight delay in achieving the initial first quarter of 2025 completion target due to challenges in sourcing materials for land reclamation.”

For 2024, the research firm also anticipated enhanced performance, primarily driven by the full-year contribution from SK Nexilis and Kibing Group’s plants, which commenced operations late last year.

“These two plants are expected to contribute about 38,400 TEUs per annum to Suria Capital. The volume of conventional cargoes is forecasted to rise due to increased bulk oil volume following the completion of the new jetty at Sapangar Bay Oil Terminal by the second quarter of 2024.”

It has maintained a “sell” rating on Suria Capital with an unchanged RM1.60 target price.