ECM Libra: ‘Buy’ call on Glomac

Target price: RM1.80

3QFY10 : Best quarter yet to come

Within expectations

Glomac reported its best quarter in over two years with 3QFY10 net profit of RM10.6 million. 9MFY10 net profit of RM28.3 million was within expectations as it achieved 71% and 72% of house and consensus full-year estimates respectively. The company announced a three sen net interim dividend as compared to 2.5 sen in 3QFY09, which is a pleasant surprise. We now expect FY10 net DPS to be at least six sen (previously five sen). Besides this, we also expect 4QFY10 results to be even better as management has guided that savings from lower construction costs and higher floor space for Glomac Tower will be recognised from 4QFY10 onwards.

Margin has improved

Although topline was lower due to the completion of Suria Stonor in 3QFY09, 9MFY10 EBIT margin has improved from 15.3% to 21.6% due to (1) product mix with better margin this year, (2) absence of impairment from its construction division, (3) fair value adjustment of RM4.9 million, and (4) gain on sale of petrol station land in Bandar Saujana Utama.

Expect bumper property sales in 4QFY10

While 3QFY10 property sales of RM76 million was lower as compared to 2QFY10 sales of RM94 million, we expect a bumper quarter in 4QFY10 with at least RM220 million sales from the finalisation of the en bloc sale of Tower D, Glomac Damansara (RM170.7 million), and conversion of sales bookings from Bandar Saujana Utama and Glomac Cyberjaya. Unbilled sales of RM384 million could also swell to over RM600 million in 4QFY10 once these sales are recognised, thereby enhancing earnings visibility over next two to three years.

BUY on strong earnings growth and plenty of catalysts

We reiterate our buy call with unchanged target price of RM1.80 based on P/E of 12x on CY10 earnings which is supported by Glomac’s three-year earnings CAGR of 16.6% with an undemanding implied PEG ratio of just 0.5x. It is also supported by RNAV of RM2.17 per share.

Over the next few months, we could expect several positive news flow (1) en bloc sale of a 15-storey tower in Glomac Cyberjaya (RM100 million) and Phase 4 of Plaza Kelana Jaya (RM267 million), (2) launching of 378 units serviced apartments in Glomac Damansara which already has 3,000 registrants, and (3) acquisition of a major mixed development landbank in KL with potential GDV of RM4 billion to RM5 billion.

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