Glomac offers good growth and dividends

KUALA LUMPUR: Investors can expect good growth coupled with decent dividends in the next few years from Glomac Bhd, according to its group managing director and CEO Datuk FD Iskandar Mohd Mansor. This is a rare proposition among local listed property developers.

“I think among the property stocks, we are one of the highest in terms of dividend payout. We don’t have a specific dividend policy. But we paid out seven sen last year (FY09 ended April 30), 8.5 sen this year (FY10), and for the next financial year we should be able to pay at least 8.5 sen, if not better,” said FD Iskandar in a recent interview with The Edge Financial Daily.

The dividend per share (DPS) of seven sen translated into a payout ratio of 61.4% for FY09 and DPS of 8.5 sen was about 60% of net profit in FY10.

Should Glomac at least maintain its dividend in FY11, gross dividend yield would be 5.2% or more, based on its closing price of RM1.63 yesterday. But this is not the first time that the group has been generous; its healthy balance sheet allows it to reward shareholders with generous dividends and it has been doing so for the last 10 years.

On top of that, FD Iskandar said the group had projects lined up that were expected to generate stronger cash flow in the next few years.

Note that as at July 31, 2010 (1QFY11), the group’s unbilled sales of properties stood at RM585 million, which is a record high. It also has RM3 billion worth of projects in the pipeline to maintain the growth momentum over the next five years.
FD Iskandar says there is no property bubble in the country.
“If we were to launch RM600 million worth of projects a year, in the next five years we will be in good stead,” he added.

FD Iskandar is a substantial shareholder of Glomac with a 14.3% equity stake. His father Tan Sri Mohd Mansor Fateh Din is the single largest shareholder with a 25.5% stake while Datuk Richard Fong owns 17.5%.

With a relatively smaller capital base compared with its larger peers in the industry, Glomac relies on a “fast turnaround” business model to generate revenue growth.

Its “fast turnaround” model is similar to the strategy of Mah Sing Group Bhd, which has been growing rapidly over the last five years. Nonetheless, analysts opined that Mah Sing has reached the stage where it is increasingly challenging for it to sustain the high growth rates.

In comparison, Glomac’s FY09 revenue of RM345.3 million (the peak over the last five years) is what Mah Sing made five years ago.

“If you look at our recent (land) acquisition… we bought 7.6 acres in the corners of Bandar Utama and Damansara Utama, to us this is a fast-turnaround project, with total GDV of RM400 million. Even the seven acres we just bought in Cyberjaya, with total GDV of about RM250 million, we hope it would be a fast-turnaround project,” said FD Iskandar.

In terms of new projects beyond FY11 (FY ends March), Glomac has the Glomac Damansara project with an estimated GDV of RM208 million, Al Batha Mutiara project (targeted GDV of RM230 million), Plaza Kelana Jaya Phase 4 (RM280 million), Glomac Utama (RM400 million) and others.

FD Iskandar said Glomac was not focusing on township development due to its relatively small paid-up capital of less than RM300 million and shareholders’ funds of RM608.2 million.  

“We are not focusing on township, unless it is somewhere closer or adjacent to the township we have in Sungai Buloh called Bandar Saujana Utama,” he noted, adding that the group was keen to participate in the development of the over-3,000-acre plot in Sungai Buloh currently owned by the Rubber Research Institute of Malaysia (RRIM).

It was reported that the development of the RRIM land will be undertaken by a joint venture between the federal government and the Employees Provident Fund, with Malaysian Resources Corp Bhd likely to be appointed a master developer.

“We are not big enough, in terms of paid-up and shareholders funds (to go big into township development). If you want to buy 1,000 acres, even at RM250,000 per acre, that is RM250 million. Now we are doing 11 projects, we got four or five more coming, so when all projects kick in at one go we have 15-16 projects, definitely we need more capital,” said FD Iskandar.

Having a gearing ratio of 0.12 times, Glomac can afford to raise its borrowing if it needs to do so.

According to FD Iskandar, Glomac is in fact in a net cash position — the first time in the group’s 22-year history.

“Even though we say we have a net gearing of 0.12 times, we also have cash in three-month papers, but auditors say we cannot put that as cash in the bank, so they categorise that as something else,” he explained.

“But if we were to take the RM70 million to RM80 million as cash, then we are in net cash position. So obviously, why be a public listed company if we don’t gear?” he added.

Commenting on the industry trend, FD Iskandar dispelled the notion of a property bubble in Malaysia.

He said property prices had only gone up sharply and unrealistically in certain projects in some hot spots. In general, he believes there is still good demand provided that developers like Glomac can offer products that offer good value to buyers.

This article appeared in The Edge Financial Daily, October 14, 2010.

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