Suria Capital – challenging port operations

[i4value]

You may think that being a privatized port operator for the whole of Sabah would make Suria Capital a company with good returns. Unfortunately over the past 12 years, the company only achieved an average ROE of 6%.



In fact quite a substantial part of its profits came from non-port operations such as property and investments.

I think this is because the economic activities in Sabah is not as developed as those in Peninsular Malaysia. While it is a growing economy and it may some time before we see Suria Capital benefiting from this.

Moral of the story? This is really a stock for the very long-term investor at the current market price.

[weijian]

Hi i4value,

Coincidentally, this is 1 of those companies in icapital.biz portfolio that I looked at.

- Most of its assets are "concession assets" (65% of equity) - the right to operate 8 Sabah ports in Sabah. The port business accounts for majority of its revenue at ~80% and it has the typical infrastructure operating margins, ie. NPM~25%. The gearing is <10% and so if the ROE is low, does that mean that it paid too much to the Sabah Gov for the concessions?

- It has 100mil RM of investment securities on its balance sheet and they are understood to be unit trusts. When I saw it, it just reminded me of Bung Moktar's court case as below:
https://www.malaysianow.com/news/2023/09...graft-case

- They got a 900mil funding from the Federal Gov to upgrade their ports. I am not sure if they need to contribute as well but it is a great thing if the Federal Gov (which is dependent on Sabah political support) chips in - Just like the US chip Act.

- Main ownership: Qhazanah Sabah bhd, the investment arm of the Sabah State government (45%), Yayasan Sabah (3.67%) and Sabah CM office (1.67%) - So the Sabah State Gov has effective control. Plenty of politicians and turnover at BOD level.

Long term? Wrong term? It's anyone guess.

[i4value]

The book value has been "bumped" up by the way it recognized the sale of the land. As such I would not consider property development as part of the operating earnings from a DCF valuation perspective.