Suria Capital - BUY - 22 May 2008

Suria Capital - Lower 1Q but growth intact (Results Note)



Price: RM2.50

Target Price: RM4.00

Recommendation: BUY



· Lower 1Q. 1QFY08 revenue at RM68.7m and net profit of RM10.1m comprised of only 20.6% and 12.0% of our forecasts respectively. Lower than expected performance was due to higher depreciation, administrative and finance costs incurred mainly for the new Sepangar Bay Container Port.

· QoQ, 1Q08 revenue and EBIT was down by 21.3% and 18.4% respectively on lower business volume as seasonally 4Q is characterised by stronger sales.

· YoY, 1Q08 grew 4.6% on higher contribution from the ports & bunkering division, which more than offset lower revenue from the contract & engineering division as its key project, the rehabilitation of Tanjung Aru - Tenom railway project is close to completion. Operating profit however slid 23.6% on the back of higher depreciation, administrative and finance costs incurred for the construction and operation of Sepangar Bay Container Port.

· We continue to like Suria for its monopoly of ports operations in Sabah and well designed growth plan. Group's growth strategies include expansion of ports operations, ventures into lucrative bunkering business, property development and possibly the O&G industry. Fine-tuning our model to reflect the higher depreciation and interest costs and potential delay in bidding of new construction projects, we tweak our FY08 and FY09 net profit forecasts downwards by 11.1% to 8.4% respectively to RM75.4m and RM91.1m respectively. Reiterate BUY on Suria Capital but lower our target price to RM4.00 accordingly based on DCF valuation with a WACC of 12.5%.





KENANGA INVESTMENT BANK BERHAD (15678-H)