Glomac Berhad (Inter-Pacific Research) outperform; target price RM1.80

Above expectation

Highlights:

Outperform: Our target price is pegged at RM1.80 based on EPS of 16.5sen and ascribed undemanding P/E ratio of 11X. Glomac re-iterated their intention to match FY10 dividend payout of 8.5sen or possibly more attractive payout. We like Glomac due to (1) unbilled sales of RM585mn; (2) scheduled launching of RM521mn worth of projects in FY11;and (3) balance GDV of RM1996mn for launching beyond FY11.

Above expectation: RM126.3mn revenue and RM15.6mn bottom line registered in 1QFY11 made up 32.8% and 34.6% of our FY11 forecast as well as 31.5% and 34.7% of consensus. Swelling top line was mainly attributable to (1) Glomac tower project is in full swing of construction stage reaching 30th floor out of total 36 floors.  Completion is expected in CY11; (2) Glomac Damansara and Glomac Cyberjaya had progress beyong the intial stage; and (3) sustainable contribution from Bandar Saujana Utama township project. We made slight adjustment to top line and earnings forecast as we are convinced of their improved earnings quality. We also introduce our earnings forecast for FY13.

Adjusted PBT Margin slightly higher: 1QFY11 PBT swelled by 78.9%q/q to RM29.5mn. Surging profit was mainly attributable to higher recognition of progress billings. Nonetheless 23.3% PBT margin registered in  1QFY11 is lesser compared to 28% in 1QFY10, mainly due to RM4.9mn fair value adjustment on investment properties in FY10. Excluding the fair value gain, 1QFY11 PBT margin improved by 4% y/y. Moving forward we are expecting similar margin due to earnings qualiity of current ongoing projects which comprises of commercial developments i.e. Glomac Tower, Glomac Damansara, Glomac Cyberjaya, Galeria Hartamas as well as matured township deveopment i.e. Bandar Saujana Utama. Commercial development usually command higher margin while Bandar Saujana Utama offer higher earnings due to its ready infrastructure.

Unbilled sales sustained at RM585mn via RM80mn sales achieved in 1QFY11: Main contribution to sales in 1QFY11 includes Glomac Cyberjaya, Seri Bangi and Bandar Saujana Utama. Moving forward replenishment of unbilled sales pivot on FY11 launches. i.e. Glomac Damansara (RM385mn), Bandar Saujana Utama(82mn) and Saujana Rawang(RM54mn).

Strong demand for Glomac Damansara project: Glomac received 3000 registrants for its 2 blocks of service apartments with GDV of RM240mn and priced at about RM600psf. Scheduled for launching in FY11, Glomac Damansara includes a retail mall and a 16 storey office block worth RM145mn and RM70mn respectively. They are looking into enbloc sales of the retail mall and also office block. However they had not discount the possibility of keeping the office block as their new HQ and retail mall as investment property if prospective buyers offer not up to their valuation.

Glomac Cyberjaya encouraging sales prompt acquisition of adjacent land: In August CY10 Glomac acquired a 7 acres land adjacent to their ongoing Glomac Cyberjaya projects for RM27.4mn or RM90psf. Glomac plans for higher density projects compared to existing RM200mn Gloman Cyberjaya development which comprise of 63 units shop house and 15 storey office tower. The shop houses had been sold out and the office tower was hold up until their desirable valuation meet. We believe the newly acquired land would offer higher GDV due to its higher density, nonetheless detail of the development remain uncertain.