Key takeaways from the meeting with management include: 1) stronger earnings are anticipated in the 2H, 2) bumping up FY24 planned launches by 46%, 3) unveiling Loop City Puchong at the end of this month, 4) confident of achieving the sales target of at least RM400mn and 5) optimistic on the local property market outlook. We adjust our FY23/24/25 earnings by -10%/+4%/+15% after factoring in revised sales, progress billings and margin assumptions. Maintain Buy with an unchanged target price of RM0.47x, based on an unchanged CY24 P/Bk multiple of 0.3x.

Stronger Earnings Are Anticipated in the 2H

Glomac's 1QFY24 net profit of RM4.1mn, reflecting a 22% YoY and 71% QoQ decline, fell short of expectations due to lower progress billings and narrower property development margins. However, management expects earnings to strengthen in 2HFY24. This optimism is underpinned by the recognition of progress billings for two projects, Plaza Kelana Jaya and 121 Residence, with one completed and the other near completion. These projects collectively account for 42% of the group's total unbilled sales, amounting to RM497mn as of the end of July – see Figure 1. Additionally, management anticipates improved labour supply, stabilised raw material prices, and strong new property sales to boost earnings in 2H.

Bumping Up FY24 Planned Launches by 46%

Despite an earnings miss, 1QFY24 saw a robust 94% YoY increase in new property sales, totalling RM101mn. This strong performance was driven by robust sales of commercial properties at Lakeside Boulevard II, Puchong, including 49 shop office units sold within three months of launch. Recognising the high demand for landed residential homes in the Klang Valley, management accelerated the launch of Semi-Ds within Lakeside Residences in Puchong, with 98 units and a GDV of RM218mn in FY24. This increased the total planned launches for FY24 to RM691mn – see Figure 3, up from the previously guided RM473mn during the 4QFY23 briefing.

Unveiling Loop City Puchong at the End of This Month

Among these launches, the maiden phase of Loop City in Puchong, formerly known as GreenTec, will be introduced at the end of this month. It has a potential GDV of RM338mn and features 980 SoHo and serviced apartment units, with sizes ranging from 450 to 750 sq ft, priced at an indicative average of RM320,000 per unit.

Confident in Achieving the Sales Target of at Least RM400mn

While 2Q is expected to be quieter due to most new launches scheduled for 2H, Glomac's management remains confident in achieving a minimum 30% growth in FY24 property sales, totalling at least RM400mn. This target seems within reach, considering that 1Q sales have already contributed 25% towards the FY24 target, coupled with the higher value of planned launches compared to FY23 (RM183mn launched in FY23). Assuming a conservative 50% take-up rate for these launches, potential sales of around RM350mn are anticipated in the 2H.

Optimistic About the Local Property Market Outlook

Management's outlook on the local property market has grown more optimistic compared to a year ago. They attribute this optimism to resilient demand for mid-market and affordable residential products, improvements in labour supply, and the stabilisation of certain raw material prices. This year, management intends to actively pursue opportunities to expand its land bank. In terms of geographical preference, management favours expanding their presence in the Klang Valley region. Regarding product preferences, the focus is on strategically located land parcels that are suitable for both quick turnaround high-rise projects and bread-and-butter landed township developments. The group’s latest net gearing ratio of 0.12x (vs. the sector average of 0.4x) implies ample capacity to gear up to capitalise on landbanking opportunities.

Forecast

In light of the underwhelming 1Q earnings, we have revised our revenue recognition and margin assumptions for the ongoing projects of the group. Additionally, we are taking the opportunity to increase our sales projections for FY24/25/26 to RM430mn/RM470mn/RM500mn, up from the previous figures of RM380mn/RM420mn/RM450mn. This adjustment is premised on the robust pipeline of upcoming launches. Consequently, our earnings estimates for FY24/FY25/FY26 Have Been Revised by -10%/+4%/+15% to RM32mn/RM36mn/RM42mn Respectively.

Valuation

We maintain our Buy recommendation with an unchanged TP of RM0.47/share, based on a CY24 P/Bk multiple of 0.3x.

Source: TA Research - 3 Oct 2023