Inter-Pacific Research: Outperform for Glomac

* Properties sales eased: Glomac’s property sales worth RM76 million in 3QFY2010 was lower than RM94 million sales achieved in 2QFY10. Despite the slight moderation in sales, we feel it is not alarming as the en bloc sales of Glomac Tower D, Glomac Damansara worth RM170.7 million is yet to be finalised as SPA. Inclusive of the en bloc transaction, cumulative sales will be RM401.7 million (233% of FY2009 full year sales), thus swelling its unbilled sales to RM554.7 million.

* Dwindling sales in Johor: Sri Saujana township project in Johor has been underperforming as sales performance dwarfed over the last three quarters. The residential project registered sales of RM6 million from launches of RM40 million. We are not surprise as Johor is enduring an oversupply issue. Also, the sluggish sales could be due to the slightly unfavorable location of the township, located about 30km from Johor Baru with the nearest residential development located about 12km away from Sri Saujana.

* Expect margin to improve: 3QFY2010 net profit rose by 11.4% q/q to RM10.6 million on the back of better margin and lower tax rate. About 70% of Glomac unbilled sales comprises of commercial and office buildings. Thus, we expect margins to improve moving forward.

* Healthy balance sheet: Net gearing ratio was reduced to 0.5% in 3QFY2010 with cash and cash equivalents of RM221.4 million held by the company. We believe Glomac will have ample capacity to further gear up when opportunity for land bank acquisition arises.

* Ongoing Projects: (1) Glomac Tower is on track for completion in 2011 with 50% of en bloc consideration collected. Next billing of 10% will be due end 2010. (2) Glomac Damansara phase 1 with GDV RM54 million fully sold. Completion of SAP for en bloc sale of Tower D to Lembaga Tabung Haji is currently pending building plan approval which is expected to be finalised in 1QFY11. (3) Glomac Cyberjaya phase 2 en bloc sales are expected to be finalised within the next three months. The 15-storey office block has a potential for RM100 million en bloc sales or long-term lease to tenant. (4) Bandar Saujana Utama new launching of residential properties in FY10 96% sold.

* Valuation: Glomac unbilled sales stands at RM384 million without taking in the RM170.7 million Glomac Damansara Tower D pending finalisation of SPA. Actual unbilled sales of about RM600 million would underpin their revenue for the next two years.

Sustainability of earning growth would come from Glomac Tower, which is 50% billed, Glomac Damansara and Glomac Cyberjaya which are at the infant stage of development. They are well positioned to further capitalise on new landbank supported by a well-managed balance sheet of 0.3% gearing. Long-term growth will be sustainable with RM900 million worth of new projects in prime Klang Valley in the pipeline. We maintain outperform with a target price of RM1.64 pegged to forward EPS of 14.9 sen and PE of 11X.