Investment Highlights

• We downgrade Glomac to HOLD from BUY with a lower fair value (FV) of RM0.40/share (from RM0.42/share previously) based on a discount of 40% to revised RNAV and neutral ESG rating of 3-star .

• The FV implies a FY25F PE of 13x, slightly higher than the current average of smaller-cap property stocks.

• The lower FV stems from the 31% to 37% downward adjustment to FY25F/FY26F core net profit (CNP) after accounting for lower-than-expected CNP margin resulting from higher construction cost for existing projects.

• Glomac’s FY24 core net profit (CNP) of RM7mil came in below expectations. It was 55% below our earlier FY24 earnings forecast and 53% below street’s.

• The variance to our forecast was mainly due to lower-than- estimated CNP margin as a result of increased construction cost and finance expense.

• In FY24, the group’s revenue fell 22% to RM266.7mil while CNP plunged 79% to RM6.6mil. This was mainly attributed to the completion of several property development projects and slower new projects launched in FY23.

• Meanwhile, FY24 CNP margin fell to 3% from 9% in FY23. This was mainly due to the higher waiver fee to allow the bumi lots in its projects to be disposed to non-bumi buyers. Additionally, Glomac’s CNP margin was impacted by higher construction costs and finance expenses.

• Glomac secured new sales of RM360mil (+19% YoY) in FY24, attaining 91% of its earlier sales target of RM393mil . The major sales contributor was Lakeside Residence (60%).

• For FY25F, management is setting a higher sales target of RM414mil-RM432mil (+15% to +20% YoY vs. actual FY24 sales), supported by planned launches of RM425mil .

• In FY24, the property investment division’s revenue grew 16% while operating profit improved 15%. This was mainly driven by the improvement in the occupancy rate of Glo Damansara mall.

• QoQ, the group reversed to a core net loss of RM2mil in 4QFY24 from a CNP of RM4mil in 3QFY24 mainly due to lower property development activities as well as increased finance cost and taxation.

• We believe that Glomac’s FY25F revenue and CNP will be largely supported by its unbilled sales of RM504mil (+45% QoQ), which represents a cover ratio of 1.4x FY25F revenue . We expect the group’s unbilled sales to be replenished with planned launches totaling RM425mil in FY25F.

• As Glomac is currently trading at an unexciting FY25F PE of 22x vs. a 4-year average of 14x, we see limited upside for the group.

Source: AmInvest Research - 14 Jun 2024