Investment Highlights

• We maintain BUY recommendation on Glomac with an unchanged fair value (FV) of RM0.42/share based on a discount of 45% to revised RNAV and neutral ESG rating of 3-star . The reduced RNAV of its projects caused by the deferment of launches was mitigated by decreased borrowings.

• The FV implies FY25F PE of 14x, slightly higher than the current average of smaller-cap property stocks.

• Glomac’s 9MFY24 core net profit (CNP) of RM9mil came in below expectation, making up only 47% of our earlier FY24F earnings and 55% of street’s.

• The variance to our forecast was mainly due to lower-than- expected CNP margin as a result of increased construction cost and finance expense, coupled with a higher mix of low- margin projects.

• Hence, we cut our FY24F/FY25F/FY26F CNP by 23%/29%/27% after accounting for lower-than-expected CNP margin owing to higher construction cost for existing projects. Meanwhile, delayed official launch of Loop City Puchong to 4QFY24 from 3QFY24 could lead to lower progress billings for subsequent years.

• In 9MFY24, the group’s revenue slid 2% YoY while CNP plunged 49% YoY. This was mainly attributed to the completion of several property development projects and slower new projects launched in FY23.

• Meanwhile, 9MFY24 CNP margin halved to 4% from 8% in 9MFY23. This was mainly due to higher contributions from lower margin projects such as Seri Kenanga Rumah Selangorku at Saujana Perdana. Additionally, Glomac’s CNP margin was impacted by higher construction costs and finance expenses.

• Glomac secured new sales of RM142mil (-8% YoY) in 9MFY24, attaining only 36% of its FY24F sales target of RM393mil . The major sales contributors were Lakeside Residence and 121 Residences.

• Given this shortfall, we anticipate that Glomac will face challenges in meeting its FY24F sales target. Nevertheless, we anticipate sales to improve in 4QFY24 from only RM9mil in 3QFY24, contributed by the launch of 2 new projects in January 2024 with a combined GDV of RM269mil .

• As at 31 January 2024, Glomac’s unsold inventory fell 1% QoQ to RM86mil. Over the past 4 years, Glomac’s inventory of unsold units has been on a declining trend .

• In 9MFY24, the property investment division’s revenue grew 16% YoY while operating profit surged 34% YoY. This was mainly driven by the improvement in the occupancy rate of Glo Damansara mall to 65% in 9MFY24 from 55% from 9MFY23.

• QoQ, the group’s 3QFY24 revenue surged 60% while CNP expanded 8x, primarily due to improvement in progress billings, particularly in Plaza Kelana Jaya .

• We believe that Glomac’s FY25F revenue and CNP will be largely supported by its unbilled sales of RM347mil (-23% QoQ), which represents a cover ratio of 1x FY25F revenue . We expect its unbilled sales will be replenished with FY24F planned launches totaling RM677mil. Meanwhile, we anticipate a recovery in CNP margin moving forward, driven by a higher mix of high-margin products from upcoming launches.

• We like Glomac for its long-term outlook underpinned by its:
  
  (i) Attractively-priced products as evidenced by strong average take-up rates of 94% for existing projects;
  
  (ii) Focus on township developments in Selangor, which has the largest population in Malaysia with robust housing demand.

• The stock currently trades at a compelling FY25F PE of 12x vs. a 4-year average of 14x, while dividend yields are decent at 4%.

Source: AmInvest Research - 27 Mar 2024