News

• Glomac entered into SPA with Perbadanan PR1MA Malaysia for the disposal of 16.9 hectares of freehold land in Cheras for a total consideration of RM145.6m.

• The completion date of the SPA will be on 31 Mar 16. Financial Impact

• The original cost and net book value of the land are RM18m (or RM9.9 psf) and RM35.5m respectively. With tax rate of 24%, the land disposal is estimated to result in net gain of RM83.6m or RM0.12 per share.

• Net gearing is expected to reduce from 0.35 to 0.25x.

Pros/Cons

• We are positive on the land disposal as this allows Glomac to unlock the value of its landbank immediately and increase its war chest for future acquisition of more strategic landbank.

• The acquisition price is translated to RM80 psf as compare to average nearby land transaction of RM100-130 psf. The disposal land is part of Suria Residen township in Cheras. Surian Residence has estimated remaining GDV of RM537m. The company has recently launched Raflesia at Suria Residen (25 units of 3-storey superlink houses) with total GDV of RM24m. Despite the land disposal cost is below market, our RNAV will be increased by 3% as the disposal net gain is higher than its NPV.

• 1QFY16 sales achieved only RM30m (vs. RM420m in 4QFY15), accounting for only 5% of company’s full year sales target of RM600m. However, we expect stronger 2HFY16 as the company plans to launch RM802m (vs. RM577m in FY15) of projects which mainly comprise of townships and landed residential products with price range from RM500-600k/unit.

• Unbilled sales stood at RM737m, representing 1.6x of the group’s FY15 property development segment revenue.

Risks

• Slowdown in sales
• Weaker margins.

Forecasts

• We maintain our FY16 earnings but FY17 and FY18 earnings are reduced by 2% and 5% respectively after removal of profit contribution from Suria Residen.

Rating

HOLD

• Positives: Strong land-banking, branding and execution track record.

Negatives

• :Lack of liquidity / free float

Valuation

• Maintain HOLD with TP raised from RM0.86 to RM0.89 based on unchanged 50% discount to RNAV (post RNAV increased by 3%) with dividend yield of 5.2%.

Source: Hong Leong Investment Bank Research - 13 Oct 2015