Investment Highlights

• We maintain BUY recommendation on Glomac with an unchanged fair value (FV) of RM0.45/share, based on a discount to RNAV of 45% (Exhibit 5), and neutral ESG rating of 3-star (Exhibit 6).

• The FV implies an FY24F PE of 9x, at parity to the current average of smaller cap property stocks.

• We also maintain our earnings forecast following our recent meet up with Glomac’s management. Here are the key takeaways:

(i) Despite a weaker performance in 1QFY24, we expect Glomac’s revenue and earnings to catch up in 2HFY24 with the easing of labour shortages, coupled with management’s stronger FY24F property sales target (>30% YoY growth).

(ii) Furthermore, we project those unbilled sales of RM60mil from Plaza Kelana Jaya and RM147mil from 121 Residence to be largely recognised over the remaining quarters of FY24F (Exhibit 4). Presently, Plaza Kelana Jaya has already been completed, while 121 Residence is in its final stage of construction.

(iii) Management guided that 2QFY24 sales are expected to be slower given that majority of its new projects will be launched in 2HFY24. Nevertheless, management remains confident in achieving its FY24F sales target of RM393mil, backed by higher FY24F planned launches of RM691mil vs. RM184mil in FY23.

(iv) Glomac is on track to launch Phase 1 of Loop City Puchong with a gross development value (GDV) of RM338mil (48% of its FY24F planned launches) by early November 2023. The first phase of Loop City Puchong consists of 980 units of small office/home office (SoHo) and serviced apartment, available in 3 sizes: 450/550/750 sq ft. The indicative average selling price per unit is affordable at RM320,000.

(v) We are positive about the sales prospects for Loop City Puchong given its affordable pricing and proximity to the group's existing Lakeside Residences project that has already fully sold all residential units. This is supported by Glomac's registration of interest on Loop City Puchong garnering a strong response prior to the official launch.

(vi) In 1QFY24, Glomac has registered a low net gearing ratio of 0.12x (from 0.16x in 4QFY23), which provides sufficient room to gear up for future value-accretive land acquisitions. Glomac is currently looking for potential land acquisitions in Klang Valley for the development of either pocket-sized projects or township developments.

• Glomac’s current P/BV of 0.3x is viewed as attractive when compared to its peers, which typically have P/BV ranging from 0.4x to 0.5x. The high book value is mainly attributed to its huge land bank with a remaining GDV of RM7.5bil in Selangor and Johor, which represents 22x FY24F revenue. The steep discount can be partly due to limited launches since FY21 (Exhibit 2), leading to declines in both revenue and earnings. However, its improving launches could serve as a catalyst for the company to be re-rated positively.

• We like Glomac’s long-term outlook, underpinned by its:
  (i) attractively priced products as evidenced by strong average take-up rate of 97% for existing projects (Exhibit 4);
  (ii) focus on township developments in Selangor, which has the largest population in Malaysia with strong housing demand; and
  (iii) robust FY24F earnings growth of 23%, backed by higher expected new launches (Exhibit 3).

• The stock currently trades at a compelling FY24F PE of 7x vs. a 4-year average of 13x, while dividend yields are decent at 4%.

Source: AmInvest Research - 24 Oct 2023