Investment Highlights

• We maintain BUY recommendation on Glomac with an unchanged fair value (FV) of RM0.42/share based on a discount of 45% to RNAV and neutral ESG rating of 3-star .

• The FV implies FY25F PE of 14x, slightly higher than the current average of smaller-cap property stocks.

• We also maintain our earnings forecast following our recent meet up with Glomac’s management. Here are the key takeaways:
  
  i. Loop City Residences' launch has been rescheduled to FY25 from the previously guided FY24. The delay in launching is due to weaker-than-expected market response, exacerbated by stiff competition in Puchong.
  
  ii. Notably, YTL Land and Development has recently launched its new high-rise development in Puchong, namely Danau Puchong, situated just 3km away from Loop City Residences. Both projects offer similar built-up areas of <1,000 sq ft, suggesting they are targeting the same demographic of millennial buyers and small families. The competition has led to a lower-than-expected booking rate for Loop City Residences.
  
  iii. As of end-January 2024, bookings stand at only 150 units out of the planned 980 units, leading to a delay in official launches due to slower-than-expected booking. Typically, developers are more confident to commence construction of a high-rise project once they have achieved >50% booking.
  
  iv. Glomac targets to launch phase 1 of Loop City Residences by 1QFY25 with a targeted booking rate of 60% from 15% in 3QFY24 through ongoing marketing campaigns.
   
  v. Despite disappointing 9MFY24 sales (totaling RM142mil), which was only 36% of Glomac’s FY24F sales target of RM393mil, Glomac remains optimistic on surpassing FY23 sales of RM302mil.
  
  This confidence is fueled by sales data observed during February-March 2024, indicating positive momentum and potential of increased sales performance in Glomac’s launched projects. With the launch of 2 new projects in January 2024 with a combined GDV of RM269mil , Glomac aims to secure at least RM160mil of sales from these 2 projects in 4QFY24.
  
  vi. In 3QFY24, Glomac has a low net gearing ratio of 0.08x (from 0.10x in 2QFY24), which provides sufficient room to gear up for future value-accretive land acquisitions. Glomac is currently looking for potential land acquisitions in the Klang Valley for development of either pocket-sized projects or township developments.
   
• Currently, Glomac has 8 ongoing projects with total unbilled sales of RM347mil, representing 1x FY25F revenue . The unbilled sales of RM123mil from 121 Residence are expected to be recognised in 4QFY24 or 1QFY25, as the project nears completion.
   
• Furthermore, subsequent revenue and earnings will be supported by launched but unsold projects amounting to RM323mil and completed inventory worth RM86mil. Notably, 73% of its launched but unsold units came from newly- launched landed projects in Lakeside Residence, namely Keys. We believe Glomac is able to register commendable sales for Keys, driven by overwhelming demand for existing projects in Lakeside Residence, which has already fully sold out.

• Looking ahead, we do not foresee any significantly more exciting or aggressive launches for Glomac in FY25. The main focus will remain on its new high-rise project, Loop City Residence, along with new phases in its existing matured townships, namely Lakeside Residences and Saujana KLIA. An upside surprise could arise from stronger- than-expected demand for Loop City Residence, potentially accelerating launches in subsequent phases of the township. To recap, total GDV of Loop City Residence is substantial, amounting to RM1.6bil.

• Glomac’s current P/BV of 0.2x is viewed as attractive when compared to its peers, which typically have P/BV ranging from 0.5x to 0.7x. The high book value is mainly attributed to its huge land bank with a remaining GDV of RM7.6bil in Selangor and Johor, which represents 21x FY25F revenue. The steep discount can be partly due to limited launches since FY21 , leading to declines in both revenue and earnings. However, improving launches could serve as a catalyst for the company to be re-rated positively.

• We like Glomac for its long-term outlook underpinned by its:
  
  (i) Attractively-priced products as evidenced by strong average take-up rates of 94% for existing projects;
  
  (ii) Focus on township developments in Selangor, which has the largest population in Malaysia with robust housing demand.

• The stock currently trades at a compelling FY25F PE of 12x vs. a 4-year average of 14x, while dividend yields are decent at 4%.

Source: AmInvest Research - 4 Apr 2024