Positive outlook for Sabah Ports with tie-up

Suria Capital-dp World pact to tackle cost issues

“The state was also considering the establishment of a free economic zone at Kota Kinabalu Industrial Park – an area that aligns with DP World’s expertise and specialisation.” MIDF Research

PETALING JAYA: Suria Capital Holdings Bhd’s partnership with DP World, an Emirati multinational logistics company based in Dubai, is viewed positively by MIDF Research.

On Wednesday, DP World confirmed the inking of an agreement with Sabah Ports Sdn Bhd (Sabah Ports), a wholly owned subsidiary of Suria Capital to jointly manage Sapangar Bay Container Port (SBCP).

Discussion between Suria Capital and DP World has been ongoing since 2019. Early last year, the Sabah government approved for Sabah Ports to pursue a strategic collaboration with DP World.

The collaboration would involve the management and operations of SBCP, along with investments in logistics and supply chain infrastructure in Sabah.

SBCP is undergoing a significant expansion project aimed at boosting its annual handling capacity from 500,000 20-foot equivalent units (TEUS) to 1.25 million TEUS.

“In previous discussions with management, it was noted there might be a slight delay in achieving the initial first quarter of the financial year 2025 (1Q25) completion target due to challenges in sourcing materials for land reclamation,” the research house said in a report yesterday.

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

The research house maintains a “positive” outlook on the potential partnership, considering DP World’s position as the fifth largest global port operator, commanding a 8.9% market share, with about 30% of its revenue generated from containerised cargoes.

“Sabah Ports currently grapple with trade imbalances, with outbound containers comprising only 30% laden boxes versus 70% empty ones, primarily due to insufficient cargo-generating activities in the state.

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

The research house said the details of the partnership agreement, including the equity structure, have not been disclosed, given that Suria Capital has not announced its cargo volume. Historically, SBCP’S port utilisation rate ranged between 50% and 60%.

“Clarity is needed regarding the concrete plans to attract significant foreign direct investments for its expanded capacity, particularly considering the current scenario where main line operators bypass Sabah Ports due to limited cargo volume,” MIDF Research said.

The research house is also projecting enhanced performance underpinned by the full-year contribution from SK Nexilis and Kibing Group’s plants, which commenced operations in early 4Q23.

“The two plants are expected to contribute 38,400 TEUS per annum to Suria Capital.

Additionally, the volume of conventional cargoes is forecast to rise due to increased bulk oil volume following the completion of the new jetty at Sapangar Bay oil terminal by 2Q24, as the existing jetty approaches its maximum capacity,” MIDF Research said.

It maintained a “sell” call on Suria Capital with a target price of RM1.60 a share as the stock is currently trading at a premium compared to both its own and the sector’s five-year average.