Glomac’s 2QFY16 results came in line with expectations. Maintain NEUTRAL and a TP of MYR0.98 (8% upside). Management has reaffirmed its FY16 sales target of MYR500m. That said, near-term sales should continue to be sluggish, dampened by weak market sentiment and high loan rejection rates. Glomac has also indicated that it is looking for more landbanking opportunities in some key regions.

In line. Glomac’s 1HFY16 (Apr) core net profit of MYR38.6m (+13.5% YoY) came in line at 50% of our full-year projection, but slightly below the consensus estimate at 43%. As expected, new sales remained slow in 1HFY16, at only MYR80m (vs MYR30m in 1QFY16) due to the lack of new launches in 1HFY16. Revenue for the quarter was largely attributable to progress billings from its key FY15 launches, such as Lakeside Residences and Saujana Rawang. This quarter also saw the maiden revenue contribution from Saujana KLIA, which was launched in January. Unbilled sales declined to MY676m this quarter (vs MYR737m in 1QFY16), due to the absence of new launches.

New launches deferred to 2HFY16. Glomac will be more aggressive with its product launches in 2HFY16, with about MYR778m of projects due to be launched. The launches will include the new phases of Saujana KLIA (GDV: MYR275m), Centro V (GDV: MYR263m) and the maiden launch of Saujana Jaya in Kulaijaya (GDV: MYR74m). Management reaffirmed its new sales target at around MYR500m for FY16, which we believe is still decent – given that about 67% of its new launches will be landed residences and due to the positive response at its Saujana KLIA maiden launch in FY15. That said, it acknowledges that sales will likely remain slow as new sales are hampered by high loan rejection rates of about 50-60%. Glomac will also be on the lookout for more landbanking opportunities as land prices have remained relatively stable due to the soft property market.

Risks. Key downside risks to our forecasts are: i) higher loan rejection rates, ii) prolonged property market weakness, and iii) low tenancy for its new Glo Damansara mall. Upside risks are: i) better-than-expected sales, and ii) a faster recovery for property market sentiment.

Maintain NEUTRAL. We maintain our forecasts, call and RNAV-based TP of MYR0.98. As there is still no re-rating catalyst for the property sector for now, we believe that Glomac’s prospects should remain soft over the next few quarters.

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 in Selangor, but in recent years, the company has diversified into township developments, which have received encouraging response from the market.

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Source: RHB Research - 3 Dec 2015