Investment Highlights

• We initiate coverage on Glomac with a BUY and a fair value (FV) of RM0.39/share, based on a 50% discount to its RNAV, similar to other property developers with a strong focus on the affordable segment, ascribing a neutral 3-star ESG rating (Exhibits 25, 26).

• Glomac is primarily a township developer with the vast majority of its projects in Klang Valley and Greater Kuala Lumpur (KL). It also has 2 affordable townships in Johor, namely Sri Saujana and Saujana Jaya. As at April 2022, Glomac has 8 key ongoing projects, 1 future project (GreenTec) and 2 projects with no development works in progress. These projects contribute to a total remaining gross development value (GDV) of RM7.7bil, spread across Selangor (90%) and Johor (10%).

• Glomac is mainly focused on terrace houses in its townships. Most of its recently launched products are priced competitively at below RM550K. For its high-rise products, Glomac offers small to mid-sized residential units from 450 to 750 sq ft with an absolute pricing for each unit that is affordable to buyers.

• In contrast to the persistent residential overhang in Johor, Glomac saw strong take-up rates in both Sri Saujana (98%) and Saujana Jaya (88%). This is due to Glomac's Johor townships which mostly offer affordable landed properties instead of high-rise ones.

• QoQ, the group’s 4QFY22 revenue declined 10% due to slower progress billing as a result of industry-wide labour shortages. However, its core net profit (CNP) surged 88%, owing to higher profit margin from cost savings on projects nearing completion.

• Driven by the gradual recovery of property demand and the resumption of construction activities after pandemic-driven lockdowns, Glomac’s CNP is expected to grow by 10% to RM40mil in FY23F, 6% to RM43mil in FY24F and 9% to RM47mil in FY25F.

• The growth in earnings will be supported by: (i) unbilled sales of RM542mil representing a cover ratio of 1.6x of FY23F revenue; and (ii) estimated FY23F–25F sales of RM282mil–RM341mil, primarily from GreenTec Puchong, Saujana KLIA and Lakeside Residences. We anticipate a stronger growth in unbilled sales with the ramping up of new launches in FY23F.

• We like Glomac for its robust long-term outlook underpinned by its: (i) products with attractive pricing as evidenced by strong average take-up rates of 90% for existing projects; (ii) focus on township developments largely in Klang Valley and Greater KL with strong demand; and (iii) fair FY23F earnings growth of 10%, backed by higher FY23F new launches of RM470mil vs. RM106mil in FY22. The new launches include GreenTec Puchong, Phase 4B of Saujana KLIA and Rumah Selangorku in Lakeside Residences.

• The stock currently trades at a compelling FY23F PE of 6x vs. a 4- year average of 15x, while dividend yields are decent at 5%.

Source: AmInvest Research - 16 Aug 2022