- Below expectations
9MFY10 results came in below house and market expectations. Net profit achieved 61% and 59% of house and consensus full-year estimates respectively. We noted that this was likely due to construction progress of MK 11 being slower than our expectation. No interim dividends were declared for the quarter.
- Revenue declined on projects completion
9MFY10 revenue declined 18.7% to RM460.7m due to completion of MK Meridin, MK 10 and part of Solaris Dutamas. Reported net profit fell by 15.7% y-o-y to RM95.3m, mainly due to one-off gain of RM19.4m from asset sale in 2QFY09. However, excluding this one-off gain in the preceding year will result in adjusted net profit improving marginally by 1.8% instead as higher margin this year from projects such as MK11 and The Residence bungalows offset the effect of lower revenue.
- Unbilled sales on the rise again
Our earlier expectation of turnaround in unbilled sales trend became a reality this quarter as it finally bucked its 5 quarters downtrend with unbilled sales of RM907m as of April 2010 (2QFY10: RM714m) mainly due to conversion of MK 28 bookings. We expect unbilled sales to continue rising as more conversion happens in the coming quarters. So far, MK 28 condominiums have secured an encouraging take-up rate of 50% since its Dec 09 launch.
- Reiterate BUY call
We tweaked our earnings for FY10-FY12 by -14.9%, +1.4% and +10.2% respectively to account for slower than expected progress of MK 11. Although our revised earnings for FY10 implies that 4QFY10 earnings need to be 57% higher q-o-q, we are confident this can be achieved as 4Q tend to be seasonally higher. Further, we believe MK28 may start contributing to earnings in 4QFY10.
Sunrise is undervalued (7.8x P/E and 42% discount to RNAV) and we believe improving sales and resumption of project launches will narrow the valuation gap. As such, we reiterate our buy call. We upgrade our target price from RM3.30 to RM3.58 based on 10x P/E as we rollover to FY11. Our RNAV remains unchanged at RM3.58.
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