In  line  with  our  sector  downgrade  (to  NEUTRAL),  we  downgrade Glomac  to  SELL  with  a  lower  TP  of  MYR0.88  (6.5%  downside).  We believe management’s FY15 (Apr) new sales target of MYR504m is a tall order  as  its  new  launches  will  likely  be  delayed  into  1Q15.  We  expect new sales to be slow as buyers will likely take a wait-and-see approach leading up to the GST, thereby posing a downside risk to earnings. 
 
Sector  downgrade.  We  have  downgraded  the  property  sector  to NEUTRAL. We  expect  property  transaction  volumes to decline  3-5% in 2015  on  the  back  of  slower  economic  growth  and  a  high  loan  rejection ate. We also anticipate property prices to stay flat as developers would have  difficulty  passing  on  incremental  costs  in  an  environment  of weakening demand. Buyers/investors and developers are likely to adopt a  wait-and-see  stance  in  monitoring  market  conditions  in  1H15,  as  the impact  of  goods  and  services  tax  (GST)  kicks in.  For the  stocks  under our  coverage,  we  estimate  new  sales  to  drop  by  an  average  10-20% YoY vs -25% YoY in 2014 and +41% YoY in 2013.

Remaining  cautious  on  new  sales  prospects.  Glomac’s new  sales performance  has  been  lacklustre,  at  only  MYR62m  for  1HFY15  (vs MYR30m  in  1QFY15)  due  to  the  lack  of  new  launches.  Management continues  to  guide  for  MYR824m  of  GDV  to  be  launched  in  2HFY15. However,  as  project  launches  will  likely  be  delayed  to  after  1  Jan,  we expect  initial  take-ups  to  be  slow  since  it  will  be  very  close  to  the implementation  of  the  GST.  Thus,  some  buyers  might  be  adopting  a wait-and-see approach. Amongst the major projects to be rolled out are Glomac Centro V (GDV: MYR263m) and the first phase of Saujana KLIA (GDV:  MYR122m).  Management  is  confident  that  total  new  sales  in FY15 will at least match FY14’s total of MYR504m – although we think this is rather bullish given the expected delays.  

Downgrade  to  SELL.  Due  to  the  challenging  outlook  for  2015,  we downgrade  Glomac to  SELL (from  Neutral).  Our  TP  drops to  MYR0.88 (from MYR1.28), reflecting a larger 55% discount (from 40%) to RNAV. Although  our  TP  suggests  a  limited  downside  of  6.5%,  we  advise investors to avoid this stock over the immediate term given the prevailing negative market  sentiment.  The  upside  risks to our view  are:  (i)  better-than-expected  new  sales  numbers,  and  (ii)  an  earlier  recovery  in buyer/investor sentiment.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Glomac  is  a  developer  largely  based  in  the  Klang  Valley.  Its  developments  are  largely  concentrated  in  the  Damansara  area,  but  in recent years, it has diversified into township developments that have received encouraging response from the market.

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Source: RHB