AllianceDBS Research more cautious on Suria Capital, downgrades stock to hold

KUCHING: The team behind AllianceDBS Research Sdn Bhd (AllianceDBS Research) is turning more cautious on Suria Capital Holdings Bhd ( Suria Capital) in view of its core port business impacted by lower commodity exports as well as challenging prospects for its coming property launches.

The research firm said lower palm oil production will continue to drag Suria Capital’s port operations. To note, four of Suria’s ports are located in the west coast of Sabah and four in the east coast.

Sandakan Port and Lahad Datu Port are the key earnings contributors for the group, driven by the export driven palm oil industry in the east coast.

“We observe that CPO production from Sabah has declined yyear on year (y- o-y) for the first seven months of 2016, dragged by the El-Nino phenomenon and we do not foresee the downtrend to reverse in the near term,” it detailled in a report yesterdat.

“As such, we believe the lower CPO production could impact Suria’s port operations.”

The group is also plagued by challenging prospects of its property projects. To recap, in May 2013, Suria signed a joint venture agreement with SBC Corp ( SBC) to develop 16.25 acres out of the 23.25 acres of land in Kota Kinabalu Port with a minimum gross development value ( GDV) of RM1.8 billion.

Based on the JV, SBC is responsible for all the costs and matters relating to the 16.25acre waterfront development named Jesselton Quay, which consists of commercial suites, retail mall, hotel, and office towers.

The said project will be developed over eight years, initially planned from 2014 to 2021. On the other hand, Suria as the landowner shall assist and facilitate in the implementation of the project.

Suria will receive a minimum return of 18 per cent of the total GDV, subject to a minimum guaranteed amount of RM324 mo;; opm which will be received progressively over the next eight years.

“We understand that management is still awaiting the approvals from the authorities with regard to its revised traffic and subdivision plans,” it highlighted.

“We still expect the group to launch its Jesselton Quay project in 2H16 but do not discount the probability of further launch delays given that significantly longer-than- expected time frame involved to obtain authority approval since the JV with SBC Corp was announced in 2013.

“Furthermore, the group has booked in the bulk of its property earnings on the JQ project with SBC Corp as oneoff disposal gains of RM112m in its 2QFY15 results, resulting in no significant earnings boost to the group if the JQ property is launched.”

AllianceDBS Research also understood that a similar accounting treatment applies to its JV with Gabungan AQRS ( GAQRS) to jointly develop the remaining 7- acre land, known as ‘ One Jesselton Waterfront ( OJW),

As such, Suria will also record a one- off disposal gain from this venture without significant recurring income.

“We downgrade our recommendation for Suria to hold a target price of RM2.15.”