Glomac ...Target Price RM1.60 (32%) Glomac Bhd current =RM1.21 Buy

Review by TA securities.
Analyst : Tan Kam Meng, CFA

Glomac’s 1QFY10 net profit of RM8.3m came in within our expectations at 26% of our full-year forecasts and 24% of consensus estimates. For this quarter, net profit rose 7% yoy (+16% qoq) due to : 1) increase in margins on the back of favourable change in product mix with rising contribution from Glomac Tower and Glomac Galleria; and 2) revaluation gains of RM4.9m from investment properties, which we have treated this as part of operating income as similar to disposal gains as the group has entered into agreements to dispose these properties. According to new accounting standards, any properties to be disposed off are required to be revalued.

Updates from analyst briefing The total sales concluded in 1QFY10 amounted to RM61m (see Table 1), which was significantly lower than 1Q09’s RM82m. However, it accounted for 29% of our full-year projections and management remained bullish and confident to secure at least one en-bloc sales either from Glomac Damansara or Glomac Cyberjaya for FY10. In other words, sales are going to pick up in 2H10. The unbilled sales as at July-09 stood at RM333m.
Glomac Tower to fuel FY10 profit. Glomac has completed the sub-structure works and has awarded the building works to contractors. According to management, the company can be more certain now that the projects would provide 30% margins after the awarding of building works. Going forward, Glomac Tower would be the earnings driver for FY10 and FY11. Glomac Damansara is going hot. This project would contribute positively to FY10 earnings after securing a 70% sale of 12 blocks of 5&8-storey shop offices with GDV of RM53m. The group is currently in negotiations for en-bloc sales of a 15-storey office block and a 25-storey corporate tower with respective GDV of RM75m and RM170m.

Commendable take up on Glomac Cyberjaya. Glomac managed to secure sales and booking of about 90% of the phase 1 launch with a GDV of RM64m. Given the commendable take up rate, the group is targeted to launch phase 2 which comprises 24 shop offices with GDV of RM41m. Meanwhile, the company is in negotiations for an en-bloc sale of a 15-storey office block. Attractive dividend yield. We raise our FY10 sales projections by 24% to RM260m given the commendable take up rate for Glomac Cyberjaya. Meanwhile, we raise the margin for Glomac Tower to 30% from 25%. Sequentially, we raise our FY10-11 earnings higher by 32% and 16%. We also raise our dividend projections from 6 sen to 7 sen as the company has committed to at least maintain last year’s dividend payment.
Valuation Given the change in our earnings estimates, we raise the target price for Glomac to RM1.60 from RM1.24 previously, based on 12x CY10 EPS. Upgrade to Buy from Hold.

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