We believe Glomac’s FY17 sales target of RM500mn is a tall order given it has only locked in RM204mn new sales in 9MFY17 and the scheduled launch of Plaza Kelana Jaya 4 will likely be postponed to FY18. On the other hand, Glo Damansara Shopping Mall’s high start-up costs and low occupancy rate could also eat to into Glomac’s profits. Longer term catalysts would be potential value accretive land acquisitions given the group’s solid financial standing with low net gearing of 0.2x. No change to our earnings forecasts, target price of RM0.69. Sell recommendation reiterated for the stock.

Unlikely to Meet Its RM500mn Sales Target

Recall, 9MFY17 sales of RM204mn only accounts for 41% of management’s sales target of RM500mn. However, we understand that management is maintaining the RM500mn sales target, pinning its hope on new launches worth RM696mn to be introduced in 4QFY17 – see Figure 1. Given the launches are mainly scheduled in Apr and with stringent mortgage loan approvals, we believe new bookings may not be converted so soon. Additionally, we gather that Plaza Kelana Jaya 4 (GDV: RM363mn) is scheduled for preview in April. As the group’s financial year will end in April, this implies that the sales from Plaza Kelana Jaya 4 will only be reflected in FY18. Therefore, full-year new sales may fall short of management’s sales target. In our opinion, RM350-400mn target for the FY would be a more realistic target. This is expected to be driven by pipeline landed residential launches and unsold stock worth RM333mn and RM200mn respectively. Note that we have already assumed the launch of Plaza Kelana Jaya 4 will be postponed to FY18.

Glo Damansara targets 50% occupancy by year end

Located within walking distance to Taman Tun Dr Ismail MRT station, Glo Damansara, is a lifestyle neighbourhood mall with 350,000 sq ft net lettable area (NLA). Currently, 30% of the NLA has commenced business with Ben’s Independent Grocer Supermarket and Bank Rakyat as its key tenants. We understand the mall has suffered losses due to low occupancy rate and high start-up costs. According to the 9MFY17 results, the property investment division suffered a loss before interest and tax of RM2.1mn. On a brighter note, we understand that the group has already secured tenants that will collectively take up another 20% of NLA. All in, management expects Glo Damansara to hit 50-60% occupancy rate by end 2017. Given the challenging market environment, we believe the mall would probably need a longer gestation period to turn profitable. Subject to market conditions, selling off Glo Damansara to interested parties remains Glomac’s goal to monetize the asset.

Landbanking activities on the cards

Management indicated that it will actively seek out opportunities to replenish its land bank in 2017. In terms of geographical preference, management prefers to strengthen its presence in the Klang Valley and Johor. Product wise, management would prefer strategic land parcels that are suitable for landed township development. We believe Glomac is in good position to lock in some land deals in the near term, considering it has received the full payment for the disposal of a development land in Cheras (disposal consideration RM145.6mn). The group’s latest net gearing ratio of 0.21x (vs. the sector average of 0.33x), implies ample capacity to gear up to capitalize on landbank opportunities.

Valuation and Recommendation

Leave our earnings forecasts unchanged. We value Glomac at a TP of RM0.69/share – based on an unchanged target P/E of 9x and CY18 EPS of 7.7sen. YTD, Glomac’s share price has underperformed the broader property sector, gaining only 4% as compared to KLPRP’s +16%. We note the rally in property stocks price has not been broad-based, and the outperformers are generally fueled by corporate exercises rather than sustained improvement in the sector outlook. Projected FY18 earnings growth of >100% is largely due to low base effect as FY17 results were hit by liquidated ascertained damages payment of ~RM25mn for late delivery of its high-rise projects. Note that Glomac delivered net profit ranging RM67mn – 108mn during sector upcycle in FY12-16, hence we opine that the estimated FY18-19 net profits remain uninspiring. With limited near-term earnings catalysts in sight, we maintain our Sell recommendation.

Source: TA Research - 10 Apr 2017