- 9M14 results below expectations. 9M14 results made up 57% of consensus estimates, as core earnings were RM71m (after stripping off RM15m one-off gain on disposal of its Australian investments), due to higher costs from construction and land conversion premium in Saujana Rawang. The group has also lowered its FY14E sales target to RM0.5b from RM0.7b as they hold back launches (e.g. Lakeside Resideces) due to challenging market conditions. As at 9M14, Glomac has unbilled sales of RM792m, which provides slightly more than 1 year earnings visibility. Management is targeting at least RM800m launches in FY15 with main contributors being Glomac Damansara Retail Mall, Saujana Rawang, Centro V and also Lakeside Residence. Assuming a 70% take-up rate, FY15 sales could be around RM0.5-0.6b. We have reduced our FY14E earnings assumption by 12.8% to RM111m since our last On Our Radar note issued on 11th June 2013.

- Affordable township landbanking in Johor. On 21st March 2014, Glomac entered into a SPA with Precious Quest Sdn Bhd to acquire the latter for RM22.7m (RM3psf) which has the rights to develop 174.2ac of leasehold land in Kulaijaya, Johor. The project GDV is RM700m and is slated to be a mixed development focusing on the more resilient landed affordable housing market. Significant earnings contribution is likely post FY16. Glomac’s remaining GDV of RM6.8b comprises of 97% Klang Valley, and 3% Johor. The Johor based project is Sri Saujana in Kota Tinggi, which started back in 1995.

- Sizeable affordable housing content to bolster demand going forward. In light of recent government policies aimed at combating speculation in the property market, we believe the affordable housing segment will prove resilient as it targets more genuine house buyers. Glomac’s affordable housing projects is est. at 60%-70% of total GDV. The group will be launching properties with price range of RM400-600k for 2-storey link houses, and RM800k+ for Semi-D’s in Saujana Rawang. Furthermore, we anticipate demand surge in 2HCY14 pre-GST implementation (April 2015), especially for affordable landed properties.

- Stable dividends. Management recently proposed a single tier interim dividend of 2.25 sen during the 3Q14 results. Despite not having a formal dividend policy, the group is targeting 4.9 sen NDPS in FY14F, which suggest 4.4% dividend yield at current levels.

- TP has been lowered to RM1.27 based on wider 50% discount on our updated FD RNAV of RM2.54. Back when we issued our On The Radar note back on 11th June 2013, our TP was RM1.45 based on 30% discount to its FD RNAV of RM2.08. The higher RNAV is due to updating of new landbanks and balance sheet figures. However, we opted to widen their RNAV discount factor to 50% to reflect the more challenging environment. The discount is wider than our average discount of 40% for developers under our coverage due to its market capitalisation size. Additionally, our TP implies 6.6x FY15E PER which is within its peer’s range of 6.7x but below their historical average of 7.5x. Even with our conservative TP, it provides a decent total return of 19.9%. Trading BUY.

Source: Kenanga