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Glomac’s growth intact on strong sales

Glomac Bhd
(March 10, RM1.29)
Reiterate buy at RM1.29, target price at RM1.78:
Glomac’s earnings are set to pick up steam. The property developer’s 3QFY10 results, due to be released end-March, are likely to meet our expectations at around RM10 million net profit (+8% quarter-on-quarter, +5% year-on-year). This follows at least RM367 million in 9MFY10 new sales compared with 9MFY09’s RM148 million. With strong unbilled sales of RM554 million and net cash by April, earnings growth will be more visible over the next two years. Reiterate buy and RM1.78 target price.

Glomac’s unbilled sales are rising. After visiting the company, we came away positive on Glomac’s outlook into FY11. Counting only the two en-bloc sales in November 2009 (Glomac Damansara — RM171 million and Glomac Cyberjaya Phase 2 — RM41 million), 9MFY10 new sales should exceed RM367 million (2.1 times full-year FY09 new sales of RM172 million). Net unbilled sales (ex-minority interest) have topped RM554 million (+50% q-o-q, 1.7 times FY09 development revenue) as at Jan 30, 2010.

We highlight three possible en-bloc sales: (i) Glomac Damansara Tower A (gross development value RM70 million, 16-storey), which Glomac had planned to use as its own corporate office; we understand that two parties have shown interest in purchasing it en-bloc at a reserve price of RM670 psf; (ii) Glomac Cyberjaya office block (GDV RM100 million, 15-storey), which could revert to its initial plan as a data and call centre; however, we understand a multi-national corporation has proposed a long-term lease for the building; and (iii) Plaza Kelana Jaya (Phase 4) office tower (GDV uncertain, 16-storey), to be launched in FY11, which already has a potential buyer for an en-bloc purchase.

We continue to like Glomac for its strong growth potential (three-year earnings per share compound annual growth rate of 12%), low valuations (8.2 times FY11 price-earnings ratio, 0.5 time revised net asset value, 0.6 book value), and its above-peer gross dividend yields of 5%-8% for FY10-FY12.
Our target price of RM1.78 pegs the stock at a 25% discount to our fully diluted RNAV of RM2.37, which also implies 12 times FY11 PER. — Maybank IB, March 10

This article appeared in The Edge Financial Daily, March 11, 2010.

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