Investment Highlights

• We maintain BUY recommendation on Glomac with a higher fair value (FV) of RM0.38/share (from RM0.37/share) after taking into account the full earnings recognition of the remaining 49% stake in Glomac Bina in FY24F. Our FV is based on a 50% discount to its RNAV (Exhibit 4) and a neutral ESG rating of 3 stars (Exhibit 5).
• The FV Implies a FY24F PE of 8x, at Parity to the Current Average of Smaller Cap Property Stocks.
• Glomac entered into a share sale agreement (SSA) with its group executive chairman and major shareholder, namely Tan Sri Dato’ FD Mansor and Mohd Yasin Loh bin Abdullah to acquire the remaining 49% equity interest in Glomac Bina for RM16mil.
• Hence, we raise our FY24F/FY25F core net profit by 9%/8% to take into account that Glomac will be able to recognise 100% of earnings (from 51% previously) from Glomac Bina following the completion of the share acquisition in 3QCY23.

• Post-acquisition, we expect the group’s FY24F net gearing ratio to increase marginally to 0.22x from 0.21x with the acquisition to be funded internally with Glomac’s cash of RM248mil as at 31 January 2023.

• We deem the purchase consideration to be fair given that it is priced at a fair FY24F P/E of 5x, at parity to the current average of smaller cap construction company.

• Despite making a loss in 9MFY23 due to lower ongoing projects (Exhibit 2), we anticipate Glomac Bina to make a turnaround (at company level) in FY24F with the increase in future projects being launched and planned (Exhibit 1).

• Presently, Glomac Bina only carries out in-house landed construction projects for the group. Moving forward, Glomac Bina plans to expand its construction services to external customers.

• Overall, we are positive on the share acquisition as Glomac will be able to capture the full profit of the construction contracts from its development while having a modest net profit margin expansion of 2%–3%-point on the group’s awarded projects to Glomac Bina.

• 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 - 13 Apr 2023