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 2) and a neutral ESG rating of 3 stars (Exhibit 3). The FV implies a FY24F PE of 8x, at parity to the current average of smaller cap property stocks.

• Glomac held an analyst briefing yesterday to shed more light on its recently announced 3QFY23 results.

• Based on current developments, Glomac has pushed the majority of launches to April 2023 as opposed to our earlier assumption of Feb-March 2023. So far, Glomac has only launched RM35mil projects out of its total planned launches of RM510mil.

• Hence, we lower our FY24F/FY25F core net profit by 8%/6% to reflect slower-than-expected launches in FY23F, which could lead to lower progress billing in subsequent years.

• Here are the key takeaways from the analyst briefing:
  (i) As at yesterday, Glomac launched Primrose Phase 4B1B in Saujana KLIA, which has 60 units of double-storey terrace houses worth RM35mil. To date, 26 units have been booked. Glomac is committed to launching the remaining pipeline projects before the end of FY23 (Exhibit 1).
  (ii) We understand from management that Glomac is negotiating with the relevant authority over a few requirements to obtain approval for the maiden debut of Greentec, Puchong. The timing of launches of Greentec could be postponed to FY24F, depending on the progress of negotiation. We continue to monitor the status of Greentec’s launch approvals and we may reflect the potential delay in our RNAV calculation based on its progress in April 2023.
  (iii) Despite an RM167mil shortfall to its FY23F sales target in 9MFY23 and the potential delay in the launch of Greentec, management is confident to achieve >RM100mil of sales in 4QFY23F based on the stronger sales momentum in FebMarch 2023, driven by its new launches and existing projects which had been launched earlier. To date, the group has secured RM50mil bookings and remains focused on converting these into sales.
  (iv) We anticipate a lower net profit margin (NPM) of 1%-2% for its upcoming stand-alone projects, particularly Greentec Puchong, as a result of rising construction cost. For its new projects in existing townships, Glomac has room to increase the pricing in subsequent phases of its housing projects, supported by strong take-up rate of its existing phases.

• 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 - 31 Mar 2023