Sunrise Bhd (Augt 27, RM2) Maintain buy at RM2.05 with target price RM3.58: FY10 results came in within house and market expectations as net profit of RM134 million achieved 101% and 97% of house and consensus estimates respectively.

A first and final net dividend per share (DPS) of 3.75 sen was declared which was in line with our expectation. Revenue declined 26.5% to RM590.7 million due to completion of certain projects while net profit fell 14.2% to RM134 million.

However, stripping out one-off gain of RM19.4 million in FY09, net profit only fell 2.1%. Earnings before interest and tax margin on the other hand improved from 26.2% to 31.4% due to more projects with higher margin.

Sunrise achieved property sales of RM637.9 million in FY10 which was a two-year high amid decent take-up for its MK28 project (50% sold).

Although unbilled sales were lower at RM861.3 million, it is on a rising trend after bottoming out at RM714 million in 2QFY10. Despite the decent numbers, sales of MK28 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.

Management informed that implementation of IFRIC 15 has been deferred to January 2012 from July 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.

Sunrise will be launching two new projects outside Mont Kiara in September or October 2010. The first is Menara Solaris (GDV RM508 million) 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 CAD$400 million or RM1.2 billion), Sunrise’s Canadian project, which will be developed on build-then-sell basis. Management is confident of these projects and has set a RM1.25 billion sales target in FY11.

Sunrise is undervalued (5.7 times 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 target price of RM3.58 based on average P/E of 10 times. RNAV remains unchanged at RM3.58. - ECM Libra Investment Research