INVESTMENT MERIT

- Sizeable affordable housing content to drive demand.  Demand for affordable housing is on the rise over the last few years, particularly in Klang Valley. This implies that demand will be quite resilient as 41%  of Glomac’s 9M13 remaining GDV are ‘affordable’ (<RM500k/unit) e.g. Bandar Saujana Utama (RM211m), Saujana Utama 4 (RM800m), Saujana Rawang (RM588m) and the new township in Cyberjaya/Putrayaja (RM1200m).

- Bullish on landbanking.   9M13 remaining GDV is almost RM7b, and the Group aims to raise it to RM10b by end FY14E, targeting both strata (for higher margins) and sizeable landbanks (townships) in the Klang Valley and Kuala Lumpur region. This is further underpinned by the development of the Singapore-Kuala Lumpur HSR. A GDV assumption of RM8.5b is easily achievable assuming the 0.4x internal net gearing limit. However if the group targets RM10b in GDV by 2014, they may have to explore a cash call to raise RM149m for landbanking (assuming net gearing is capped at 0.4x) or ensure that land cost is significantly lower than 10% of GDV.

- Sales to exceed FY13 sales target of RM750m and it appears they may do c.RM800m sales or 20.6% YoY growth. 9M13 sales have reached RM519m (excluding en bloc sales), 51% higher than the corresponding period last year with strong sales from Saujana Rawang (RM127m), Saujana Utama (RM108m), Reflection Residences (RM89m) and Glomac’s new flagship project, Lakeside Residences (RM63m) which experienced full take up rates for the phases launched for 9M13.

- TRADING BUY with a fair value of RM1.45, based on 30% discount to FD RNAV of RM2.08. Glomac is currently trading at 9.1x-7.2x FY13-14E PERs and 1.2x Fwd PBV which is comparable to its average of 9.3x-8.3x and Fwd PBV of 1.1x. However, Glomac does offer slightly higher dividend yields of 3.8% vs. its peer average of 3.6%. Our discount to our FD RNAV is in line with what we apply on our small-mid cap developers. Since property stocks are in the process of narrowing their discount to RNAV, we believe the potential valuation is realizable.

TECHNICALS

- Resistance: RM1.41 (R1), RM1.73 (R2)

- Support: RM1.26 (S1), RM1.17 (S2)

- Views: A “Bullish Pennant” is taking shape on the daily chart. However, only a breakout above RM1.34 would give off a buy signal further gains towards RM1.73 next. For now, watch for breakout.

BUSINESS OVERVIEW

- Glomac Berhad is a property development company established back in 1988 and listed in 2000. The groups core business remains property development with greater focus on prime land in the Klang Valley and greater Kuala Lumpur region.

- The group has completed more than RM4b in total sales value for townships, residential, commercial, and mixed development properties.

BUSINESS SEGMENTS

- Glomac’s current projects are mainly located in the the Klang Valley, one township in Johor and townships in Cyberjaya.

- Core business segments breakdown (by EBIT)

1) Property Development (98%)

2) Construction (2%)

3) Property Investment (0%)

4) Others (0%)

Source: Kenanga