Glomac’s earnings momentum to pick up in subsequent quarters

Glomac Bhd (Sept 18, 82.5 sen)

Maintain buy with an unchanged target price (TP) of RM1.06: Glomac Bhd’s first quarter of financial year 2015 (1QFY15) core net income (CNI) of RM21.1 million was within our expectations as it makes up 23% of our FY16 full-year estimate of RM93.1 million. It also met consensus estimate by achieving 23% of FY16 full-year estimate of RM92.7 million. As expected, no dividend was announced in 1QFY16.

Glomac’s 1QFY15 CNI grew 1% year-on-year (y-o-y) to RM21.1 million. Despite the flattish growth in 1QFY16, we anticipate stronger earnings growth in subsequent quarters due to a high contribution expected from Saujana KLIA, which still has unbilled sales of RM240 million.

Glomac’s sales of RM30 million make up 6% of our target of RM544 million for FY16. It is at 5% of management’s target of RM600 million. We deem this as within expectations as 1QFY16 is usually a slow quarter for Glomac. Note that in FY15, 1QFY15 makes up only 6% of full-year sales of RM506 million.

Since our upgrade to “buy” call on June 25, when the share price was RM0.795, the stock has performed very well with an 8.2% gain so far. This has clearly outperformed the KL Property Index which has declined 6% to 1159.41 in the same period.

We believe there is still an upside for Glomac’s share price due to its FY16 CNI growth expected at 48% y-o-y, which is the highest among its peers due to a low-base effect in FY15, and its net dividend yield of 5.1% is higher than average peers of 4.1%.

Its high concentration in landed properties, consisting 67% of total launch, should translate into a lower risk of missing the sales target.

We maintain our earnings forecast of RM93.1 million for FY16. Also intact is our TP of RM1.06, which is based on a 20% discount to its revalued net asset valuation. — MIDF Research, Sept 18

This article first appeared in the digitaledge DAILY on Sept 21, 2015. Subscribe here.