Glomac (SJ Securities) buy; fair value RM3.00

Glomac Bhd
Investment Highlights

Glomac’s results were strong and surged as expected. However it has exceeded even our own forecasts which were above consensus. The cumulative 3 quarter revenue for FY11 has achieved 81.6% of full year forecasts while net profits were 72.6% of full year forecasts. We are expecting revenues to exceed our previous full year forecasts while net profits to easily achieve full year forecasts. We have tweaked our forecasts accordingly.

Strong sales. We foresee very strong upcoming sales for Glomac’s upcoming launches. Current sales in Glomac Damansara were very strong as expected. Sales for the first block of service apartments were 75% sold and Glomac has recently soft launched its second block with good initial response.

Strong upcoming sales. We expect the sales from the upcoming Glomac Mutiara Damansara Residences and Glomac Cyberjaya to take off later this year. We are quite confident with the potential response in future. We also expect generous margins for these projects.

Potential en-bloc surprises. Glomac has several office towers such as Glomac Cyberjaya valued at RM95mil, Plaza Kelana Jaya valued at RM280mil and another 2 office towers at Glomac Damansara. En Bloc surprises are possible for these developments and they have garnered interest.

Future prospects all in the pipeline. We have estimated Glomac’s GDV as of now to total RM3.6bil. This alone would be sufficient to secure Glomac’s sales and growth for the next half a decade and beyond. Moreover, we are very confident in at least 70% of this GDV. Key project launches in the pipeline that we are very confident in include further launches in the flagship Glomac Damansara, Glomac Mutiara Damansara Residences, Glomac Utama, Glomac Cyberjaya 2, Bandar Saujana Utama and Glomac’s Puchong project.

We expect Glomac’s Puchong project to surprise on the upside once it is acquired smoothly and launched. Visibility and unbilled sales. Glomac has a strong unbilled sales of RM500mil, moreover the actual unbilled sales is even higher as Glomac has locked in a lot of sales for its Glomac Damansara. The unbilled sales alone is enough to ensure steady earnings and growth for the group, while awaiting a strong year for Glomac’s sales.

MRTs and LRTs.
As indicated previously, many of Glomac’s upcoming or current developments are close to the MRTs and LRTs. It’s key developments Glomac Damansara is a
stone’s throw from two proposed MRT stations. Glomac’s Mutiara Damansara development is located less than 1km from the proposed MRT station. Glomac’s developments in Kelana Jaya and Puchong would benefit greatly from the LRT extension projects as well.

Improving margins.
Glomac’s margins have continued to improve. Gross margin’s have gradually climbed to 27.8% for the year. It was 26.0% the year before and lower prior to that. We expect Glomac to maintain or even improve their margins further on anticipation of their upcoming projects. Moreover much of the infrastructure has been done for its key projects, indicating to higher margins.

High dividends.
Glomac is one of the best dividend players in the industry. In FY10, Glomac paid a total of 8.5sen. We believe Glomac would repeat, if not increase its dividends in the following year. However based on 8.5sen alone, the dividend yield is roughly 4.7%. As expected Glomac had increased its dividends further and have just declared a 4.5 sen
dividend.

Outstanding financial performance.
In the most recent quarter, revenue had increased both Q-o-Q and Y-o-Y. Revenue for the quarter increased an outstanding 124.1% while netprofit increased 55.2% as compared to the previous year quarter. Recommendation. Our fair value for Glomac is RM3.00 based on a forward PER of 10x and 2012F’s EPS of 30 sen. We consider Glomac’s valuations to be very attractive based on its  substantially lower valuations than its comparable peers, Glomac’s fast paced growth, high dividends and has strong potential catalysts. We are confident of Glomac’s future prospects based on its upcoming projects, unbilled sales, potential catalysts and strong management
team.