Stock Name: GLOMAC
Company Name: GLOMAC BHD
Research House: INTER PACIFIC

Glomac Bhd
(Sept 22, RM1.53)
Recommend outperform at RM1.46 with target price of RM1.80: Our target price is pegged at RM1.80 based on EPS of 16.5 sen and ascribed undemanding PER ratio of 11 times. Glomac reiterated its intention to match its FY10 dividend payout of 8.5 sen or possibly a more attractive payout.

We like Glomac due to: (i) unbilled sales of RM585 million; (ii) scheduled launching of RM521 million worth of projects in FY11; and (iii) balance GDV of RM1.99 billion for launching beyond FY11.

The RM126.3 million in revenue and RM15.6 million bottom line registered in 1QFY11 made up 32.8% and 34.6% of our FY11 forecast as well as 31.5% and 34.7% of consensus.

The swelling top line was mainly attributable to: (i) construction of the Glomac Tower project is in full swing, reaching the 30th floor out of 36 floors. Completion is expected in CY11; (ii) Glomac Damansara and Glomac Cyberjaya have progressed beyond the initial stages; and (iii) sustainable contribution from the Bandar Saujana Utama township project.

We have made slight adjustments to top line and earnings forecasts as we are convinced of Glomac's improved earnings quality. We also introduce our earnings forecast for FY13.

1QFY11 PBT swelled by 78.9% quarter-on-quarter to RM29.5 million. Surging profit was mainly attributable to higher recognition of progress billings.

However, the 23.3% profit before tax (PBT) margin registered in 1QFY11 is less than 28% in 1QFY10, mainly due to RM4.9 million fair value adjustment on investment properties in FY10. Excluding the fair value gain, 1QFY11 PBT margin improved by 4% year-on-year.

Moving forward, we are expecting similar margins due to the earnings quality of current ongoing projects comprising commercial developments ' Glomac Tower, Glomac Damansara, Glomac Cyberjaya, Galeria Hartamas as well as the mature township development Bandar Saujana Utama.

Commercial developments usually command higher margins, while Bandar Saujana Utama offers higher earnings due to its ready infrastructure.

The main contributions to sales in 1QFY11 include Glomac Cyberjaya, Seri Bangi and Bandar Saujana Utama.

Moving forward, replenishment of unbilled sales pivot on FY11 launches, which are Glomac Damansara (RM385 million), Bandar Saujana Utama (RM82 million) and Saujana Rawang (RM54 million).

There were 3,000 registrants for its two blocks of service apartments with a GDV of RM240 million, priced at about RM600 psf. Scheduled for launching in FY11, Glomac Damansara includes a retail mall and a 16-storey office block worth RM145 million and RM70 million, respectively.

Glomac is looking to en bloc sales of the retail mall and the office block. However, it has not discounted the possibility of keeping the office block as its new HQ and retail mall as investment property if offers from prospective buyers are not up to its valuation.

In August CY10 Glomac acquired a seven-acre tract adjacent to its ongoing Glomac Cyberjaya project for RM27.4 million or RM90 psf. It plans for higher density projects compared with the existing RM200 million Glomac Cyberjaya development which comprises 63 shophouses and a 15-storey office tower.

The shophouses are sold out and the office tower is held up until Glomac's desirable valuation is met. We believe the newly acquired land will offer a higher GDV due to its higher density, though details of the development remain uncertain. ' Inter-Pacific Research, Sept 22


This article appeared in The Edge Financial Daily, September 23, 2010.