Investment Highlights

• We maintain BUY recommendation on Glomac with a lower fair value (FV) of RM0.37/share from RM0.39/share based on a 50% discount to its RNAV (Exhibit 7) and a neutral ESG rating of 3 stars (Exhibit 8). The revised valuation stems from lower FY23F–FY25F earnings after reducing our gross profit margin (GPM) and timing of revenue recognition assumptions.

• Glomac’s 1QFY23 core net profit (CNP) of RM5mil was below expectations, making up only 13% of our FY23F earnings and 14% of consensus estimate. The variance was mainly due to lower-than-expected GPM with the higher mix of low-margin projects in 1QFY23 as the group deferred the launch its high-margin projects.

• We trim our FY23F/FY24F/FY25F earnings by 9%/7%/6% to reflect a 1% decline in GPM in view of deferment of the timing of planned launches of projects in Lakeside Residences and GreenTec to 4QFY23 from 2Q/3QFY23.

• In 1QFY23, the group’s CNP surged 3x YoY while revenue expanded 2.3x YoY. This was mainly contributed by a stronger revenue growth of 2.4x YoY from property development. 1QFY23 saw higher property sales, coupled with an acceleration of site progress works with the reopening of the economy.

• Glomac secured new sales of RM52mil (+73% YoY) in 1QFY23, attaining 16% of its FY23F sales target of RM321mil (Exhibits 3, 5). We understand from management that the sales momentum is stronger in 2QFY23. Hence, we believe its sales target of RM321mil remains on track. The key contributors to sales were Lakeside Residences (35%), Bandar Saujana Utama (17%), Plaza@ Kelana Jaya (13%) and 121 Residences (12%).

• Meanwhile, the group’s unbilled sales dropped 11% YoY and 6% QoQ to RM512mil, which represents a cover ratio of 1.6x of revised FY23F revenue (Exhibits 3, 5).

• The average take-up rate for its ongoing projects as at 31 July 2022 was stable at 91% vs. 90% as at 30 April 2022 (Exhibit 5).

• In 1QFY23, the property investment division’s operating profit expanded 2.3x YoY on the back of higher revenue of 36% YoY. The improvement was driven by higher rental income of carpark and properties after Malaysia entered into the endemic phase starting April 2022.

• QoQ, the group’s 1QFY23 CNP decreased by 66% while revenue fell 11%. This was primarily caused by lower operating margin of 16% in 1QFY23 vs. 43% in 4QFY22 from its property development segment as a result of increased proportion of its low margin Rumah Selangorku project. Besides, the better operating margin in 4QFY22 was also attributed to cost savings from the projects nearing completion.

• In FY23F, Glomac aims to launch 3 projects with an estimated gross development value (GDV) of RM469mil, including GreenTec Puchong (67%), Saujana KLIA (18%) and Lakeside Residences (15%) (Exhibit 4).

• As at 31 Jul 2022, Glomac’s unsold inventory level slid 10% QoQ to RM96mil. Over the past 4 years, we have seen Glomac’s inventory level of unsold units on a declining trend (Exhibit 6).

• Glomac proposed its final dividend of 1.5 sen/share for FY22, which represents a dividend payout ratio of 32% and yield of 5%.

• We like Glomac for its long-term outlook underpinned by its:
  (i) products with attractive pricing, as evidenced by its strong average take-up rate of 91% for its existing projects;
  (ii) focus on township developments in the largest population state in Malaysia with strong housing demand; and
  (iii) its FY24F earnings growth of 7%, backed by higher FY23F new launches of RM469mil vs. RM106mil in FY22. The new launches include the debut launches at GreenTec Puchong, Phase 4B of Saujana KLIA and Rumah Selangorku in Lakeside Residences (Exhibit 4).

• The stock currently trades at a compelling FY24F PE of 6x vs. a 4-year average of 15x, while dividend yields are decent at 5%.

Source: AmInvest Research - 22 Sept 2022