Results

• Below Expectation: 3QFY17 earnings fell by 75% YoY to RM5.4m, bringing 9MFY17 core earnings to RM2.2m, only accounting for 10% and 5% of our and consensus forecast respectively.

Deviation

• Mainly due to lower margin from property development and absence of new launches.

Highlights

• YoY: 3QFY17 revenue fell by 45% as key projects had been completed while awaiting fresh launches. After stripping out the one off grant received for infra upgrading surrounding Glomac Damansara development for RM26m and net gain of land disposal for RM81m, 9MFY17 was barely profitable at RM2.2m mainly due to lower margin from property development and lack of new launches.

• QoQ: Core earnings swung from losses to profit of RM5.4m as EBIT margin improved from 5% to 17% but remained below average of 24%.

• 3QFY17 new sales achieved RM122m (versus RM49m in 2QFY17), driven mainly by new launches from Saujana Perdana and Phase 7 for Lakeside Residences with total GDV of RM157m. Both projects received well response with take up rate above 50%.

• 9MFY17 sales achieved RM204m, only accounting for 34% of company sales target of RM600m (or 41% of our assumption of RM500m). The company is planning for circa RM700m of new launches in 4QFY17 alone. Any delay in new launching represents downside risk to the sales target.

• Unbilled sales improved slightly from from RM415m to RM484m QoQ, representing 0.8x (versus 0.7x in previous quarter) of the group’s FY16 revenue from property development.

Risks

• Weakening margin.

• Delay in new launching.

Forecasts

• FY17 earnings forecast is reduced by 30% mainly due to lower margin assumption and lack of new project launching.

Rating

Ceasing Coverage

• Despite a healthy balance sheet with low net gearing at 0.14x and consistent dividend yield of above 4.0%, we see little investment appeal in the stock at this juncture. As such, we are ceasing coverage on Glomac.

Valuation

• Our TP is lowered slightly from RM0.68 to RM0.67 based on unchanged 55% discount to RNAV of RM1.50 post earnings downgrade.

Source: Hong Leong Investment Bank Research - 23 Feb 2017