Sunrise 4QFY2010 (ECM LIbra) buy; target price RM3.58

Within expectations
FY10 results came in within house and market expectations as net profit of RM134.0m achieved 101% and 97% of house and consensus estimates respectively. A first and final net DPS of 3.75 sen was declared which was inline with our expectation. Revenue declined 26.5% to RM590.7m due to completion of certain projects while net profit fell 14.2% to RM134.0m. However, stripping out one-off gain of RM19.4m in FY09, net profit only fell 2.1%. EBIT margin on the other hand has improved from 26.2% to 31.4% due to more projects with higher margin.

Venturing into serviced apartment operations
Sunrise achieved property sales of RM637.9m in FY10 which was a 2-year high amid decent take-up for its MK28 project (50% sold). Although unbilled sales were lower at RM861.3m, it is on a rising trend after bottoming out at RM714m in 2QFY10. Despite the decent numbers, sales of MK 28 have stagnated of late and management attributed that to more stringent credit evaluation by end-financiers. To better manage capital values and yields of properties post completion, management has ventured into the business of operating serviced apartments. No meaningful contribution is expected in the near term and immediate focus is to differentiate and improve marketability of Sunrise products.

IFRIC 15 deferred to 2012
Management informed that implementation of IFRIC 15 has been deferred to Jan 2012 from Jul 2010. This is a huge relief to investors who are concerned with volatility of  developers’ earnings post IFRIC 15 although our view is that fundamentally it changes nothing.

Stepping up launches outside Mont Kiara
Sunrise will be launching two new projects outside Mont Kiara in Sep or Oct 2010. The first is Menara Solaris (GDV RM508m) where there are currently interested en bloc  purchasers. However, if negotiation falls through, the project will be launched on strata basis. The second project is the first phase of Quintet (GDV CAD400m), Sunrise’s Canadian project, which will be developed on build-then-sell basis. Management is confident of these projects and has set a RM1.25bn sales target in FY11.

Reiterate BUY call
Sunrise is undervalued (5.7x P/E and 43% discount to RNAV) and we believe improving sales and resumption of project launches will narrow the valuation gap. We reiterate our BUY call and maintain TP of RM3.58 based on average P/E of 10x. RNAV remains unchanged at RM3.58.




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