Review

• Glomac’s 1HFY20 net profit of RM9.0mn came in at 55% of both ours and consensus full-year earnings forecasts. However, we deem the results to be above expectations, as we expect the group will sustain the strong 2Q results in coming quarters, stemming from: 1) a pick-up in development activities, and 2) a turnaround in its property investment division.

• Glomac’s 1HFY20 net profit jumped 337% YoY to RM9.0mn. Stronger results were driven by :1) development margin expansion of 3%-pts due to a pickup in development activities, 2) property investment segment reported an operating profit of RM4.6mn in 1HFY20 as compared to operating loss of RM0.6mn in 1HFY19, and 3) lower effective tax rate as the previous corresponding period result was impacted by nonrecognition of deferred tax assets on tax losses and under provision of prior year tax expenses.

• Glomac secured new sales of RM181mn in 2QFY20 (+151%YoY, +654% QoQ) bringing the 1HFY20 sales to RM205mn (+25% YoY). Stronger sales was largely boosted by the maiden launch of 121 Residences (Tower A, GDV: RM175mn, 90% sold). Higher 2Q sales lifted the group’s latest unbilled sales to RM552mn from RM432mn a quarter ago. This provides the group with more than 12-months’ earnings visibility.

Impact

• Our FY20-22 earnings forecasts are revised higher by 5-15% after taking factoring in the followings: 1. Revise our FY20/21/22 sales assumptions to RM500mn/ RM590mn/ RM610mn from RM537mn/ RM580mn/ RM610mn previously. 2. Increase blended EBIT margin by 0.4% - 0.7%-pts to reflect more favourable product mix. 3. Project Glo Mall to breakeven in FY20 vs. our original forecasts of operating loss of RM3mn.

Outlook

• Revised FY20 launches lower to RM534mn. Glomac has decided to roll out only RM534mn worth of new launches in FY20 from RM903mn guided previously – see Table 2. The group deferred the launch of RM214mn Green Tec Central at Lakeside Residences to next year as it has recently secured a partner to jointly plan and develop the project. Meanwhile, the launches at Saujana KLIA and Saujana Jaya Johor are also postponed to next year as the group is in the midst of improving the overall development concepts for these townships. Nonetheless, the group will ramp up launches in Saujana Perdana in 2HFY20 (increase FY20 planned launches by 38%) as the earlier phases have been 88% sold.

• FY20 sales target revised to RM500mn. Following the revision in planned launches, management has scaled down its FY20 sales target to RM500mn from RM600mn previously. FY20 sales are expected to be driven 121 Residence (GDV: RM321mn). Official launched in Sep, Tower A of 121 Residence which features 445 serviced apartments and SoHo units was 90% sold (indicative selling price of RM750psf). Meanwhile Tower B is earmarked for launch in Dec. 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. We understand that Tower B is 40% booked since it was opened for registration in Sep.

• Glo Mall to Breakeven in FY20. Recall, Glo Mall’s occupancy has increased to 74% following the entry of the Samanea Malaysia by LessoHome, (a China lifestyle home living brand occupied 40% of the mall space), which commenced operation in Jun-19. Management expects the mall to breakeven by end of the FY, supported by higher occupancy and rental rates.

Valuation

• We raise our TP to RM0.39/share from RM0.37/share previously, following the change in earnings estimates. In addition, we also raise our target P/E multiple by 1x to reflect better sales and earnings outlook going forward. We now value Glomac based on target average blended CY20 PE/PB of 6x/0.4x. Upgrade Glomac to Hold.

Source: TA Research - 26 Nov 2019