Results

• Below Expectation: 1QFY17 core PATAMI plunged by 79% YoY (excluding net gain of RM82m for land disposal in Cheras) to RM4.5m versus our and consensus full year forecast of RM80m and RM90m respectively.

Deviation

• Mainly due to lower margin from property development and higher start up operating expenses from Glo Damansara mall.

Highlights

• Excluding land sales of RM146m in Cheras, 1QFY17 revenue fell by 14% YoY and 38% QoQ. Core profit also declined by 70% YoY and 87% QoQ due to high-rise projects are nearing completion with higher mix of landed property with lower margin coupled with higher start up operating expenses from Glo Damansara mall. We expect lower development margin going forward given 60% of new launches in landed residential.

• No special dividend to declare upon completion disposal of land in Cheras as the company intends to preserve cash for landbanking exercise. Net gearing is reduced from 0.25x to 0.20x.

• 1QFY17 new sales only achieve RM31m (versus RM30m in 1QFY16). As expected, Cent ro V with GDV of RM240m is push back to FY18 given its high price range of ~RM800 psf in the current soft market. Total planned launching is reducing from RM1.2b to RM1bn with target launch from 2QFY17 onwards. To be conservative, we further reduce our FY17 sales target assumption from RM560m to RM500m (versus company target of RM600m).

• Given the success of Bandar Saujana Utama, Glomac will debut launch of landed residential in Saujana Utama 4 & 5 in 2QFY17 with total GDV of RM291m with indicative starting price of RM430k onwards. Another key new project is Plaza Kelana Jaya, Phase 4 with GDV of RM344m, consisting of 390 serviced apartments and 28 three & five storey shop offices.

• Unbilled sales is depleting from RM652m to RM512m QoQ, representing 0.9x of the group’s FY16 revenue from property development.

Risks

• Slowdown in sales

• Weaker margins.

Forecasts

• FY17 and FY18 earnings forecasts are reduced by 51% and 17% after we incorporate lower sales target and margin assumption.

Rating

HOLD

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

• Negatives: Lack of liquidity / free float

Valuation

Maintain HOLD with TP lowered from RM0.80 to RM0.72 based on unchanged 55% discount to RNAV posted earnings and sales downgraded.

Source: Hong Leong Investment Bank Research - 22 Sep 2016