INVESTMENT HIGHLIGHTS

• 9MFY17 earnings below expectation

• 9MFY17 earnings declined yoy

• Sales to pick up in 4QFY17

• Earnings estimate reduced

• Maintain NEUTRAL with lower Target Price of RM0.75

9MFY17 earnings below expectation. Glomac Berhad (GLOMAC) 9MFY17 Core Net Income (CNI) of RM0.4m was below expectation against ours and consensus CNI expectation of RM57m and RM64m respectively for the full year of FY17. We believe that the negative deviation is caused by lower than expected recognition of property sales. A 1.5 sen dividend is announced. We have excluded RM82m gain from Cheras land sale and RM28m gain from grant received for upgrade and improvement of infra surrounding Glomac Damansara development.

9MFY17 CNI declined yoy. Excluding the land disposal, revenue is lower by 35%yoy due to lower billings. We believe this has caused CNI to decline.

Sales to pick up in 4QFY17. 9MFY17’s sales of RM204m makes up 41% of management target of RM500m. Strong sales is expected in the 4QFY17 as the Company has planned to launch properties worth RM696m. Out of these, the biggest projects will be Plaza Kelana Jaya Phase 4 (GDV: RM363m) and Saujana Perdana (SU 4) (GDV: RM267m). As a result, we maintain our FY17 sales target of RM420m as we expect it to pick up in 4QFY17.

Earnings estimate reduced. FY17 earnings estimate has been reduced by 63% to RM21.1m to reflect the lower revenue recognition.

Maintain NEUTRAL with reduced Target Price of RM0.75. We have shifted the project revenue recognition period in our RNAV to a later stage and hence the lower Target Price. The discount to RNAV of 40% remains unchanged. Although we expect GLOMAC to register lower earnings in FY17 against FY16, the Company’s effort to lower down its gearing in current challenging environment is commendable.

Source: MIDF Research - 23 Feb 2017