Glomac reduces sales target to RM500 mil

Glomac Bhd 
(Dec 3, 91 sen) 
Maintain buy with an unchanged target price (TP) of RM1.08: Glomac Bhd’s first half ended Oct 31, 2015 (1HFY16) core net income (CNI) of RM42.1 million was within expectations as it accounted for 45% of both our and consensus full-year estimates for financial year ending April 30, 2016 (FY16). As expected, no dividend was announced in 1HFY16.

Glomac’s 1HFY16 CNI grew by 24% year-on-year (y-o-y) to RM42.1 million. The strong earnings growth was engendered by 40% y-o-y revenue growth to RM269.1 million. Its revenue growth was supported by the recognition of ongoing projects such as Lakeside Residences, Saujana Rawang, Glomac Centro, Reflection Residences and Saujana KLIA. However, profit before tax margin slipped to 22.2% (against 1HFY15’s 27%), causing earnings growth to be lower at 24% y-o-y against revenue growth of 40% y-o-y.

Glomac 1HFY16’s sales of RM80 million accounted for 15% of our target of RM544 million and 13% of the original management’s target of RM600 million for FY16. The management has reduced its sales target to RM500 million due to the soft market and high rejection rate from the banks on mortgage loan applications.

We deem this as within expectations as the group has strong launches with a gross development value of RM778 million in 2HFY16. Out of this, 66% of the launches are landed properties, meaning a higher chance of meeting the sales target.

Since our upgrade to “buy” on June 25 when it was trading at 79.5 sen, thenceforth, the stock has performed very well with a 13.8% gain. We believe there is still upside for Glomac’s stock price due to its FY16 CNI growth expected at 48% y-o-y (the highest among peers), net dividend yield of 4.9% (higher than average peers of 4.1%), and its high concentration in landed properties (67% of total launch), which 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 RM1.08, which is based on a 20% discount to the revised net asset value — MIDF Research, Dec 3

This article first appeared in The Edge Financial Daily, on December 4, 2015. Tap here to subscribe for your personal copy.