Review

• Glomac’s 1QFY20 net profit of RM3.5mn (+243% YoY, -2% QoQ) came in within expectations, accounting for 21% of both ours and consensus full-year forecasts.

• Glomac’s 1QFY20 revenue declined 10% YoY to RM51.9mn. The weaker results were attributable to lower progress billing as previous key contributing projects are nearing completion or have completed during the period under review while new projects are still at its initial stage of development.

• However, 1QFY20 net profit jumped 243% YoY to RM3.5mn, largely due to 1) lower administrative expenses and 2) lower effective tax rate as the previous corresponding quarter result was impacted by higher effective tax rate due to non-recognition of deferred tax assets on tax losses.

• Glomac only secured new sales of RM25mn in 1QFY20 (-73% YoY, -77% QoQ) as no new projects were launched during the quarter under review. Unbilled sales as at Jul-19 eased to RM432mn from RM476mn a quarter ago. This provides the group with 12-months’ earnings visibility.

Impact

• No change to our FY20-22 earnings forecasts.

Outlook

• RM903mn worth of new launches with 121 Residence as the key launch for FY20. The group plans to roll out RM903mn worth of new launches in FY20. Following the successful launch of Plaza @ Kelana Jaya in FY19 (GDV: RM292mn, 71% sold), the group introduced another high rise project - 121 Residence (GDV: RM321mn). Soft launched in Aug, Tower A of 121 Residence was 90% sold (445 serviced apartments and SoHo units, indicative selling price of RM750psf). Management is confident with this project given its strategic location with close proximity to the bustling hub of One Utama and competitive pricing of RM300k/unit onwards.

• FY20 sales target of RM500mn - RM600mn is maintained. Management expects FY20 sales to improve YoY in view of sizable pipeline launches worth RM903mn in FY20 (vs. RM540mn launched in FY19). Despite only recorded RM25mn property sales in 1Q, management has maintained its FY20 sales target of RM500mn - RM600mn (+55% to +86% YoY), driven by bookings conversion from Tower A of 121 Residences as well as pipeline launches in 2H. We project the group to record property sales of RM537mn in FY20, on the conservative assumptions: 1) high rise project i.e Lakeside Residence and 121 Residences to record take up rate of 50%, and) c. 70% take up for other projects.

Valuation

• No change to our target price of RM0.37/share, based on target average blended CY20CY PE/PB of 5x/0.4x. Although our FY20 - FY21 net profit forecasts of RM16.5mn and RM36.5mn imply annual profit growth of >100%, we believe the estimates remain uninspiring, compared to net profit ranging RM67mn – RM108mn delivered by Glomac during the sector upcycle in FY12-16. Maintain Glomac as Sell.

Source: TA Research - 18 Sept 2019