By THE EDGE
ASEAMBANKERS Research has maintained a “buy” on Sunrise Bhd at RM3.72 following its planned acquisition of three parcels of freehold land in Canada, pending further guidance from the management.
The research house said it is maintaining its forecasts for Sunrise, with an unchanged target price of RM4.62 based on 12 times 2008 calendar year earnings per share.
Sunrise announced last Thursday that it planned to buy the three parcels of land located in Richmond, British Columbia (BC), which collectively measured 210,826 sq ft, from Intergulf Investment Corp for C$35 million (RM112.07 million).
It said the planned acquisition towards a mixed development project appeared positive on its initial research.
Citing the report of Canada’s national housing agency, Canada Mortgage and Housing Corporation (CMHC), Aseambankers Research said sellers’ market conditions had prevailed in BC since 2002.
It said BC would continue to register real gross domestic product (GDP) growth of 3.2% and 3.4% in 2007 and 2008, respectively, compared with the national average of 2.3% and 3%, respectively.
“BC is experiencing a historical low unemployment rate of 4.2% in 1Q07; job opportunities in BC, generated by a growing economy (and with the Vancouver’s 2010 Winter Olympics in sight), will attract people from other parts of Canada and reinforce strong housing demand.
“Net migration, including international and inter-provincial migration, will add about 100,000 people to the province’s population during the next two years.
“CMHC also anticipates that the average property price in BC will increase by 8.7% in 2007 and by 4.2% in 2008,” Aseambankers Research said in a research note last Friday.
Since the land is zoned for industrial use, Sunrise said it would submit an application to re-zone the land for commercial and residential purposes, and that the development would require an additional investment of C$230 million.
Assuming a 10% mark-up to the estimated total development cost of RM848 million and a combined federal-provincial corporate tax rate of 36%, Aseambankers Research estimated that the project’s net profit would be at C$17 million or RM54 million, representing a net margin of 6.4%.
“Spread over three years, this translates to an average increment of RM18 million per annum to our FY09 forecast or an additional 9.6% to our RM187 million forecast,” the research house said.
Aseambankers Research said the development was subject to the country and currency risks of Canada as well as risk of a US recession due to strong linkages of the two economies.