Background

Gromutual Bhd (GMUTUAL, 9962) was incorporated on 14 August 2003 as a private limited company under the Companies Act, 1965.The Company was converted into a public limited company on 13 January 2004 and has assumed its current name since has completed the Restructuring Scheme which involved taking over the listing status of Medas Corporation Berhad, a company listed on the Second Board of the Bursa Malaysia Securities Berhad.

The Company is principally involved in investment holdings and provision of management services to the subsidiary companies. The principal activities of the subsidiary companies are general and property construction, provision of project management services, letting of apartments and shop offices and investment holdings.

1. Good Experience in Industry

GMUTUAL has track records of over 30 years experience in property development. The company has curved out a niche in residential, commercial and industrial development. GMUTUAL gained good reputation of being trustworthy developer for timely delivery of qualities properties. The company has grown steadily over the years and has undertaken the property development in Melaka and Johor states. The development products range from landed residential, commercial building and industrial parks. Development of service apartments are in the pipeline.

Besides focusing on property development, GMUTUAL has broaden its income based by investing in the properties that provide steady stream of recurring rental income. The investment portfolio includes student’s apartments catering for students from nearby universities, namely Multimedia Media University "MMU" and Universiti Teknikal Malaysia Melaka ("UTeM") and industrial building for manufacturers.

2. Strong Growth

GMUTUAL reported sales of RM133.46 million (US$41.55 million) for the year ending December of 2013. This represents an increase of 28.1% versus 2012, when the company's sales were RM104.15 million. This was the third consecutive year of growth at GMUTUAL. Sales of Property Development saw an increase of 31.2% in 2013, from RM95.05 million to RM124.68 million.

GMUTUAL is targeting to launch projects with RM700 million in gross development value (GDV) over the next few years. To date, it has undertaken property developments in Melaka and Johor with a GDV of RM800 million. Its project named Austin 18 in Iskandar Malaysia achieved 50% take-up rate. The project comprises 319 units of Versatile Business Suites within the mature enclave of Mount Austin in Johor Bahru and is targeting commencement of building works in June 2014. GMUTUAL is optimistic that the fresh and modern concept, as well as its affordability, will continue to attract buyers.

3. Healthy Balance Sheet

GMUTUAL remained in strong financial standing, with total borrowings at RM50.4 million in end-FY2013, while cash and bank balances increased to RM38.9 million from RM14.0 million in end-FY2012. Consequently, net gearing improved to 0.04 time, as compared to 0.14 time previously.

4. Consistent Earning

GMUTUAL recorded Profit Before Tax was more than RM15 million for the past 5 years. The PBT is increasing over the past 5 years.

            2009 – RM15,414,173

            2010 – RM15,278,995

            2011 – RM27,347,531

            2012 – RM29,588,901

            2013 – RM36,034,145

5. Solid Shareholder’s Fund

Shareholder’s fund of GMUTUAL increased steadily over the past 5 years. Shareholder’s fund rose 8.0% to RM286.6 million as at FYE 2013 versus RM265.4 million in the previous year end.

            2009 – RM221,975,391

            2010 – RM230,657,241

            2011 – RM248,774,670

            2012 – RM265,408,902

            2013 – RM286,597,676

6. Consistent Payout of Dividend

GMUTUAL paid dividend of RM0.015 (FYE 2012) and RM0.02 (FYE 2013). This has translated into dividend yield of 4.2%.

7. Trading at Discount

GMUTUAL’s share price is trading at discount of 37% based on NTA of RM0.76 in FYE 2013.

8. Potential Re-value of Properties

GMUTUAL has several properties that last valuation was conducted for past 5 - 10 years. The properties should worth more than 50% if re-valued. Here are some undervalue properties.

Those properties will worth extra RM16.5 million if re-valued at 50% appreciation of price. This will increase GMUTUAL’s NTA to RM0.80.

9. Shares Price Still Trading at Low Level

Price of GMUTUAL still trading at same level since beginning of 2014 (closed at RM0.485 on 2/1/2014) while properties index already up from 1293 points to 1492 points (up by 15.39%).

10. Low PER

GMUTUAL is trading at PER of 6.79X while Property sector is trading at average PER of 10.68. Below is the comparison of PER between GMUTUAL and other small cap property companies.

Average PER of small cap property companies is 12.82X. GMUTUAL is expected to be traded in PER of 12X in long term.

Target Price

Short term Target : RM0.615 (based on PER of 8.61X)

Medium Term Target : RM0.76 (based on Property Sector PER of 10.68X)

Long Term Target : RM0.915 (based on small cap property companies PER of 12.82X)  

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