Glomac’s 2QFY14 results were in line with expectations. New property sales growth, however, are getting sluggish. Management revises down its sales target, which will likely fall by 10% from FY13. Total targeted launches for FY14 are cut to MYR1bn (vs MYR1.3bn previously) as a high-rise project, Centro V, has been deferred. Given the undemanding valuations, we maintain our Trading BUY call and MYR1.36 FV.

Within expectations. Glomac’s 2QFY14 results came in within expectations. Key projects contributing to the earnings include all three township projects, Cyberjaya 2, Centro, Reflection Residences, as well as Damansara Residences, which will be completed in early CY14. Headline net profit was skewed by a one-off gain from the disposal of its investment in Melbourne, Australia amounting to MYR15m.

Cutting FY14 sales target. From an initial targeted sales growth of 10% (ie about MYR900m from MYR802m in FY13), management is getting more conservative and guiding for a 10% contraction in new sales for FY14 (ie about MYR720m), mainly due to the negative impact from regulatory measures. In our opinion, even meeting the revised sales target could be challenging given its 1HFY14 property sales of only MYR265m (MYR136m in 1Q). Total targeted launches for FY14 have also been cut to MYR1bn, vs MYR1.3bn previously. Given the unfavourable market conditions, the focus going forward will be on landed housing, as this segment is typically less speculative and less affected. New phases in the existing townships will therefore be launched in 2HFY14, including Saujana Rawang (GDV: MYR128m), Lakeside Residences (MYR121m), and the new Saujana KLIA township (MYR205m). The launch of Centro V (MYR254m), which is a high-rise commercial project, has been deferred to FY15.

Forecasts. We make no changes to our earnings forecasts as we had earlier estimated a flat sales growth. FY15 earnings will be underpinned by the record high unbilled sales of MYR888m (vs MYR852m in 1Q).

Maintain Trading BUY. Despite less demanding valuations, given the current negative sentiment on the property sector, we maintain our Trading BUY rating on the stock. Our FV is kept at MYR1.36, based on a 30% discount to RNAV.

Source: RHB