Delay in Suria Capital’s Jesselton Quay project expected

Suria Capital Holdings Bhd (Aug 17, RM2)

Downgrade to hold from buy with a lower target price of RM2.15 from RM2.90 previously, based on revalued net asset value valuation. We take a more cautious stance on the stock in view of: i) the possibility that its core port business could be adversely impacted by lower commodity exports; ii) challenging prospects for its upcoming property launches; iii) sustainable earnings contributions from its joint venture (JV) property launches no longer being significant; and iv) the group’s likelihood of using the upcoming cash proceeds from SBC Corp Bhd for working capital and other business ventures, rather than to be partially paid out as dividends.

This means that it could take a longer time for shareholders to reap the rewards from the proceeds arising from the JV.

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

We still expect the group to launch its Jesselton Quay project in the second half of 2016, but do not discount the possibility of further launch delays, given the significantly longer-than-expected time frames needed to obtain approvals from authorities since the JV with SBC Corp was announced in 2013, and that the current property cycle is no longer conducive for big launches compared with 2013 and 2014.

Furthermore, the group has booked in the bulk of its property earnings on the Jesselton Quay project with SBC Corp as one-off disposal gain of RM112 million in its second quarter financial year 2015 results, resulting in no significant earnings boost to the group if the Jesselton Quay property is launched.

While we do see deep value in Suria Capital, we do not foresee near-term catalysts for its value to be crystallised. Key risks to our view include slowing port activities and delays in property launches. — AllianceDBS Research, Aug 17

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This article first appeared in The Edge Financial Daily, on Aug 18, 2016. Subscribe to The Edge Financial Daily here.