Investment Highlights

• We maintain BUY recommendation on Glomac with an unchanged fair value (FV) of RM0.37/share based on a 50% discount to its RNAV (Exhibit 7) and a neutral ESG rating of 3 stars (Exhibit 8). The FV implies a FY24F PE of 8x, at parity to the current average of smaller cap property stocks.

• Glomac’s 9MFY23 core net profit (CNP) of RM22mil (excluding a one-off bumi waiver fee of RM4mil - an expense associated with releasing Bumi lots to non-Bumi) came in below expectation, making up 61% of our earlier estimated net profit and 58% of street’s projected earnings.

• The variance to our forecast was mainly due to lower-thanexpected revenue as a result of slower construction progress owing to labour shortages. In addition, its FY23F planned launches that were initially scheduled to be launched in 2Q-3QFY23 have been postponed to 4QFY23.

• Hence, we lower our FY23F CNP by 15% after accounting for the slower progress billing and deferment of new launches. We make no changes to FY24F/FY25F CNP on the expectation that labour shortages will ease and that its FY23F targeted launches of RM510mil will proceed as planned.

• In 9MFY23, the group’s CNP inched up 1% YoY despite a 13% YoY increase in revenue. The lower CNP margin was mainly due to higher construction cost brought on by the surge in both building material and labour costs. Glomac secured new sales of RM154mil (2x YoY) in 9MFY23, attaining only 48% of its FY23F sales target of RM321mil (Exhibits 3 & 5).

• Its subsequent sales will be supported by its planned launches on high-demand affordable housing with average prices per unit of RM320K in GreenTec Puchong and RM530K-603K for its double-storey terrace housing in Saujana KLIA.

• Even though the new launches were delayed to 4QFY23, there is a likelihood for Glomac to hit its sales target if the group can achieve a 33% take-up rate for planned launches of RM510mil in 4QFY23.

• We believe Glomac is able to register commendable sales for its new launches in Saujana KLIA driven by the overwhelming demand for the existing project, which have a take-up rate of 99%. Meanwhile, we are positive on the sales prospect for GreenTec as it is adjacent to the group's existing Lakeside Residences project in Puchong, which are already fully sold.

• The average take-up rate for its ongoing projects as at 31 January 2023 was stronger at 95% vs. 92% as at 31 October 2022 (Exhibit 5).

• The group’s unbilled sales dropped 9% QoQ to RM448mil, which represents a cover ratio of 1.4x of FY23F revenue (Exhibits 3 & 5).

• In 9MFY23, the property investment division’s operating profit fell 44% YoY despite a 40% YoY growth of revenue. This was mainly attributed to higher operating cost incurred for the common area in the group’s properties while tenants are still enjoying rental holiday during the early months of tenancy.

• QoQ, the group’s 3QFY23 revenue dropped 16% due primarily to lower development activity. Meanwhile, its CNP declined 61% due to the reduction in its operating margin of the property development segment from 29% in 2QFY23 to 19% in 3QFY23 after adjusting for the one-off bumi waiver fee of RM4mil.

• As at 31 January 2023, Glomac’s unsold inventory level slid 4% QoQ to RM90mil. Over the past 4 years, Glomac’s inventory level of unsold units have been on a declining trend (Exhibit 6).

• 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 95% for existing projects; (ii) focus on township developments in the largest population state in Malaysia with strong housing demand; and (iii) FY24F earnings growth of 26%, backed by higher FY23F new launches of RM510mil vs. RM106mil in FY22. The new launches include 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 7x vs. a 4-year average of 15x, while dividend yields are decent at 5%.

Source: AmInvest Research - 30 Mar 2023