Investment Highlights

• We maintain BUY recommendation on Glomac with an unchanged fair value (FV) of RM0.38/share, based on a 50% discount to its RNAV (Exhibit 7), and a neutral ESG rating of 3 stars (Exhibit 8). The FV implies an FY24F PE of 8x, at parity with the current average of smaller cap property stocks.

• We made no changes to our earnings forecasts as Glomac’s FY23 core net profit (CNP) of RM31mil came in within our forecast but above consensus’ expectation. It was 3% above our forecast and 6% above street’s.

• We also take the opportunity to introduce FY26F earnings with a growth of 12% on expectation of a pick-up in property launches.

• However, Glomac’s proposed final dividend of 1.25 sen/share was 17% lower than our previous estimation of 1.50 sen/share. However, we maintain FY24F-FY25F dividend for now.

• In FY23, the group’s CNP declined 18% YoY despite a 31% YoY increase in revenue. The lower CNP margin was mainly due to higher construction costs brought on by higher expenses incurred for building materials and labour.

• Also, its margin was further dragged by a RM7mil waiver fee to allow the bumi lots in Plaza Kelana Jaya and Glomac Centro to be disposed to non-bumi buyers. On a positive note, this led to an increase in the take-up rate for Plaza Kelana Jaya to 92% in 4QFY23 from 82% in 3QFY23.

• Glomac secured new sales of RM302mil (+89% YoY) in FY23, attaining 94% of its earlier sales target of RM321mil (Exhibits 3 & 5).

• For FY24F, management is setting a higher sales target of RM393mil (+30% YoY vs actual FY23 sales) on the back of 3 new launches worth RM475mil. These include Lakeside Residences, Saujana KLIA and the maiden launch of Loop City Puchong (Exhibit 4).

• We believe Glomac is able to register commendable sales for the launches of new phases in Lakeside Residence and Saujana KLIA, driven by overwhelming demand for existing projects which have a take-up rate of >90% (Exhibit 5).

• Meanwhile, we are positive on the sales prospect for Loop City Puchong which is adjacent to the group's existing Lakeside Residences project that has already fully sold its residential units.

• The group’s unbilled sales grew 18% QoQ to RM528mil, which represents a cover ratio of 1.5x of FY24F revenue (Exhibits 3 & 5).

• As at 30 April 2023, Glomac’s unsold inventory level was flattish QoQ at RM90mil. Over the past 4 years, Glomac’s inventory level of unsold units has been on a declining trend (Exhibit 6).

• We estimate its net gearing ratio to expand to 0.28x in FY24F from 0.16x in FY23 given the maiden launches of Loop City Puchong in 4QFY24.

• In FY23, the property investment division’s operating profit fell 33% YoY despite a 38% YoY growth of revenue. This was mainly attributed to higher operating costs incurred for the common areas of the group’s properties while tenants were still enjoying rental holidays during the early months of their tenancies.

• QoQ, the group’s 4QFY23 revenue almost doubled at RM131mil while CNP rebounded to RM14mil from barely breaking even in 3QFY23 primarily due to stronger property sales (3x QoQ), particularly in Bandar Saujana Utama and Lakeside Residences. Notably, Glomac achieved an impressive take-up rate of 96% for its 4QFY23 launches of commercial properties in Saujana Perdana (GDV: RM68mil).

• We like Glomac for its long-term outlook underpinned by its: (i) attractively priced products as evidenced by strong average take-up rate of 95% for existing projects; (ii) focus on township developments in the largest population state in Malaysia that has strong housing demand; and (iii) FY24F earnings growth of 29%, backed by higher new launches of RM475mil vs. RM184mil in FY23 (Exhibit 4).

• The stock currently trades at a compelling FY24F PE of 7x vs. a 4-year average of 14x, while dividend yields are decent at 5%.

Source: AmInvest Research - 22 Jun 2023