• FY17 earnings below expectation

• FY17 earnings declined yoy

• Achieved RM420m of sales in FY17

• Earnings estimate trimmed

• Maintain NEUTRAL with lower Target Price of RM0.69

FY17 earnings below expectation. Glomac Berhad (GLOMAC) 9MFY17 Core Net Income (CNI) of RM19.4m was below expectation as it makes up only 92% of ours and 44% of consensus estimate. We believe that the negative deviation is caused by lower than expected core EBIT margin. A 1.5 sen dividend is announced (full year dividend: 3.0 sen). We have excluded: i) RM82m gain from Cheras land sale, ii) RM28m gain from grant received and iii) RM18m loss from Provision For Liability Bumi Quota.

FY17 CNI declined yoy. Excluding the land disposal, revenue is lower by 25%yoy due to lower billings. We believe this has caused CNI to decline.

Achieved RM420m of sales in FY17. FY17’s sales of RM420m makes up 84% of management target of RM500m. It is within our estimate of RM420m. For FY18, management expect sales to improve against FY17 underpinned by strong launches of RM1.02b planned. We are estimating RM500m of sales for FY18 assuming healthy take-up rate of above 75% for its landed project. Unbilled sales of RM556m provide less than one year earnings visibility.

Earnings estimate trimmed. FY18 earnings estimate has been reduced by 14% to RM33.4m to reflect the lower margin assumption.

Maintain NEUTRAL with reduced Target Price of RM0.69. We have lowered the margin assumption and increased the discount to RNAV to 45% (from 40%). The higher discount is due to GLOMAC low earnings visibility which is now below one year. Despite its lacklustre earnings outlook, the Company’s effort to keep its net gearing low at 0.21x in current challenging environment is commendable

Source: MIDF Research - 22 Jun 2017