Review

• Excluding the disposal gain of c.RM80mn (net) and a one-off grant of RM26.3mn, Glomac’s 9MFY17 normalised net profit of RM10.3mn came in below expectations. It only accounted for 26% and 20% ours and consensus’ full-year forecasts. The variance was largely due to 1) lowerthan-expected revenue, 2) weaker-than-expected property margin, and 3) higher-than-expected tax rates.

• The group declared an interim dividend of 1.5sen/share. This was lower than the 2.0sen/share declared in the corresponding period of last year.

• Glomac’s 9MFY17 headline PBT jumped 63% YoY to RM153.3mn. However, normalized PBT would have declined by 77% YoY after adjusting for the impact of land disposal (Cheras land sale to PR1MA for RM145.6mn announced in Oct-15) and one-off grant received for upgrade and improvement of infrastructure surrounding Glomac Damansara development amounting to RM26.3mn. The poor results were attributable to slow progress billing as its previous key contributing projects are nearing completion or have completed during the period under review.

• Glomac locked in new sales of RM122mn in 3QFY17, boosting the YTD 9MFY17 sales to RM204mn (+56% YoY) – see Table 1. Better sales performance was driven by new launches within Saujana Perdana Sungai Buloh (GDV: RM107mn, 53% sold) and Lakeside Residences in Puchong (Phase 7 GDV: 50mn, 53% sold).

• Higher sales helped to lift the group’s unbilled sales higher to RM484mn from RM415mn a quarter ago. Nevertheless, this still provides the group with less than 12-months’ earnings visibility.

Impact

• FY17-19 earnings forecasts are reduced by 8-37% after we incorporate lower progress billings, property margin and higher effective tax rate assumptions. Nevertheless, we maintain our FY17-19 new sales assumptions of RM400mn- RM766mn

Outlook

• 9MFY17 sales of RM204mn only accounted for 31-34% of management’s sales target of RM600-650mn. We understand that management is maintaining its target, pinning its hope on new launches worth RM696mn to be introduced in 4QFY17.

• However, we are keeping our FY17 sales projections of RM400mn as we assume that the launch of Plaza Kelana Jaya 4 (GDV: RM363mn) will be postponed to FY18. We believe the serviced apartments/condominium market in Klang Valley is expected to be challenging in the near term in view of large incoming supply scheduled for completion in 2016-2017. In our earnings model, we project ~60% take up for other landed residential projects.

Valuation

• Looking beyond the weak FY17 results, Glomac should be able to deliver better earnings in FY18-19, as property sales show signs of recovery. We arrive at a new target price of RM0.69/share based on 9x CY18 EPS. Reiterate Sell as we believe the stock is fully valued at this juncture.

Source: TA Research - 23 Feb 2017