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Sunrise Bhd (OSK Research); neutral; target price RM2.27

Below Expectation

alt9MFY10 annualised net profit was approximately 16% below our and consensus’ fullyear expectation. Although 9MFY10 turnover fell by 19% y-o-y (as certain major development projects were completed during the period), core net profit improved by 2% y-o-y on the back of better earnings margin. Q-o-q turnover and net profit, however, fell by 29% and 32% respectively mainly due to the completion of certain major development projects such as MK10 and slower progress billings. Unbilled sales stand at RM907m as of April 2010 (excluding additional RM164m sales, pending SPA completion), amounting to 1.1x of FY09 total turnover. Earnings are fine-tuned and fair value is tweaked downwards marginally to RM2.27. Maintain Neutral.

Annualised earnings below expectation. Annualised net profit was 16% below our fullyear expectation mainly due to the fact that the results had yet to significantly account the impact from the recent soft launch of RM998m MK28 (30% take-up) and the soon-to-belaunched Solaris Towers KL (worth an estimated GDV of RM440m). In addition, progress billings for existing projects were also slower than expected during the quarter. Although turnover fell 19% y-o-y, core net profit improved by 2% y-o-y on the back more contribution from higher-margin projects such as MK11. More details on results in page 2.

Earnings fine-tuned. Tweaking some assumptions on completion rates, particularly for MK11, and our GDV assumption for Soloris Towers KL (from RM528m to RM440m), we are fine-tuning our FY10 and FY11 earnings downwards by 10% and 2% respectively.

Earnings prospect for next 2-3 years appears OK. Its current unbilled sales of RM907m, which accounts for approximately 1.1x of FY09 total turnover, will likely to sustain its current earnings level well into most part of FY11. In addition, near-term earnings will likely to be further supported by its recently soft-launched RM998m MK28 (bookings indicated to about 40% take-up). Other projects to be launched in the mid-term include the Solaris
Towers KL in 1QFY11 (GDV estimated at RM440m); the 50:50 JV with Sime Darby on the RM1bn Bukit Jelutong integrated development project, likely to be by FY11 (not in forecast yet); and the Canadian build-then-sell project by, perhaps, 2QFY11 (not in forecast yet). Management also unveiled its upcoming development of premium homes in Kajang (villa terraces, semi-Ds and detached homes), next to the Mines Resort worth an estimated GDV of >RM700m (expected to commence launching in phases by FY11 but not in forecast yet).

Maintain Neutral. After some adjustments to the FY10 and FY11 earnings forecasts, CY10 target price is revised downwards marginally to RM2.27 (from RM2.33), which is based on 0.98x CY10 P/NTA. We believe the stock has currently somewhat full-valued our anticipated upcycle in 2011 and as such, we maintain our Neutral call for now.
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