Review

• Excluding the fair value gain of RM17mn for the GLO Damansara retail mall, Glomac’s FY24 core net profit of RM6.6mn fell short of expectations, representing only 51% and 47% of ours and the consensus full-year forecasts, respectively. This underperformance was primarily attributed to lower-than-anticipated development margins and higherthan-expected finance costs. Note that our revenue forecast for the same period was nearly spot on.

• The group has proposed a final dividend of 1.25sen/share, consistent with the amount paid in the previous financial year and exceeding our dividend projection of 1.0sen/share. Based on Glomac’s last closing price, the proposed dividend translates to a yield of 2.8%.

• YoY, FY24 revenue declined by 22% to RM266.7mn, and core net profit plummeted by 79% to RM6.6mn. The revenue drop was due to the completion of several development projects in FY23, with new projects still in the early construction stages. Meanwhile, the sharp decline in net profit was primarily caused by a 17% increase in finance costs and a decrease in the EBIT margin from 20.1% to 13.6%. This margin contraction was driven by higher construction costs, a shift towards more affordable housing projects, and a 22% increase in marketing expenses to promote new projects.

• Sequentially, 4QFY24 slipped into a core net loss of RM1.8mn from a profit of RM3.8mn in the immediate preceding quarter. This was primarily due to a 31% reduction in revenue, coupled with increased finance costs (+34% QoQ) and higher tax expenses (+93% YoY).

• Despite missing earnings expectations, Glomac saw a substantial increase in new property sales during 4QFY24, reaching RM217mn compared to RM9mn in 3QFY24 and RM148mn in 4QFY23 (refer to Table 1). This boosted total new property sales for FY24 to RM360mn, marking a 19.2% YoY increase and surpassing our sales assumptions of RM300mn. The strong sales performance was largely driven by the successful launch of ALLAMANDA double-storey terrace houses at Saujana KLIA and KEYS semi-Ds at Lakeside Residences, achieving sales rates of 81% and 63%, respectively, since their January 2024 launch. In addition, the earlier-thanexpected launch of Loop City Residences at the end of 4QFY24 also contributed to a positive sales surprise.

• As a result of the strong property sales in 4Q, the group’s latest unbilled sales increased from RM347mn in 3QFY24 to RM504mn, providing earnings visibility over the next 2 years.

• The group's balance sheet is healthy, with the latest net gearing at 0.07x.

Impact

• After considering the latest guidance from management, we have revised our sales assumptions for FY25 and FY26 to RM420mn and RM480mn, respectively. This is a slight increase from our previous assumptions of RM400mn and RM450mn. According to the latest launch schedules, we also slow down our revenue recognition for the new launches. Additionally, we reduce our blended EBIT margin assumptions for FY25 and FY26 by 0.3%-pts and 1.2%-pts, respectively, to reflect the impact of the increased construction cost.

• Taking into account the actual FY24 performance, the revised sales, progress billings and margin assumptions mentioned above, we have slashed our earnings estimates for FY25 and FY26 by 13% and 17%, respectively.

• We introduce FY27 net profit of RM30.0mn, which implies a growth of 24% YoY. This projection is supported by a property sales assumption of RM500mn. Conference Call Highlights

• Glomac aims for 15-20% YoY growth in property sales, targeting approximately RM420mn to RM430mn for FY25. This target is supported by new launches totaling RM425mn (refer to Figure 3) and the recent launch of Loop Residences worth RM340mn, which achieved a 9% sales rate (inclusive booking 22%) at the end of 4QFY24. Management expresses confidence in maintaining strong sales momentum throughout the year, driven by a diverse pipeline of new projects designed to meet a wide range of market demands.

• Management anticipates margin improvement in the coming years, driven by a better product mix that comprises more high-margin launches like commercial units and semi-Ds.

• While initial plans to enter the data centres business in Cyberjaya were paused due to Covid-19 in 2020, management keeps the option open, considering Cyberjaya's strategic location and attractive incentives under the MSC Malaysia Status.

• Leveraging its solid balance sheet, management intends to actively pursue opportunities to expand its land bank. In terms of geographical preference, management favours expanding their presence in the Klang Valley region.

• Overall, management maintains cautious optimism about Glomac's longterm prospects, underpinned by a robust balance sheet and a substantial pipeline of development projects with a potential GDV of RM7.0bn.

Valuation

• In line with the property sector re-rating, we increase our target P/Bk multiple to 0.4x (previously 0.3x) and arrive at a new target price of RM0.63/share (previously RM0.47/share). We believe the potential downside to the share price is limited, supported by a robust free cash flow of 16sen per share. Maintain Buy.

Source: TA Research - 14 Jun 2024