Key takeaways from Glomac’s analyst briefing include:

Management expects the 30% gross profit margin to be sustainable

To recap, Glomac’s 1QFY25 net profit surged 79% YoY to RM7.3mn, exceeding expectations due to higher development margins. The gross profit margin improved to 31% from 26% a year ago, driven by increased contributions from commercial properties, unlike last year’s lower margin from affordable housing products. Looking ahead, management expects the gross profit margin to remain around 30%, supported by a more favourable product mix that includes high margin launches like commercial units and semi-Ds.

15-20% Sales Growth Target Remains on Track

Despite a modest start with just RM20mn in new sales in 1Q, management is optimistic about achieving 15-20% sales growth in FY25, aiming for RM420- 450mn in new sales. Encouragingly, sales momentum has accelerated in 2Q, with total new property sales exceeding RM100mn up to mid-September. The recent launch of double-storey terraces at Saujana Utama 5, Sungai Buloh, in August, with a GDV of RM66mn, has been well-received, reaching 54% sold. The group is gearing up to launch an additional RM393mn worth of projects from 3QFY25 onwards. Assuming a 60% take-up rate, which we view as conservative given that Glomac’s landed properties typically sell out within a year, sales of approximately RM230mn are expected in 2H. Additionally, the contribution from the RM340mn Loop City Residences, launched in late April 2024, will be crucial in meeting the overall sales target.

Revving Up Marketing for Loop City Residences

Loop City Residences, featuring 980 SoHo and serviced apartment units priced at an average of RM320,000 each, has seen a slower-than-expected response since its official launch in April 2024. Currently, around 300 units have been booked, representing a 30% booking rate, a modest improvement from the 22% rate recorded three months ago. Yet, this performance still lags the typical 60% take-up rate seen in high-rise property launches within the first six months of their launch. Management points to intense competition in the area as the main hurdle. To turn the tide, management plans to ramp up efforts with impactful, large-scale marketing campaigns, aiming to boost the take up rate to 50-60% by the end of FY25.

Shifting Into High Gear

Management is optimistic about the local property market and is gearing up to intensify its launch activities next year. The group plans to significantly ramp up annual launches to RM700-800mn from FY26 onwards, a significant increase from the RM400-500mn slated for FY25. At the same time, management is actively exploring opportunities to expand its land bank, with a focus on highdemand areas like the Klang Valley and Johor. Strategically, management is looking for land that is suitable for both quick-turnaround high-rise projects and core township developments The group’s low net gearing ratio of 0.06x (compared to the sector average of 0.4x) also provides ample room for leveraging, positioning them well to seize land-banking opportunities and fuel future growth.

Forecast

We revised our FY25-27 earnings forecasts upward by 4-19%, driven by higher EBIT margin assumptions due to an improved product mix. However, this is partially offset by a more conservative pace of progress billings, which better aligns with the timing of new launches.

Valuation

Factoring in the earnings revision, we arrive at a new TP of RM0.64/share (previously RM0.62/share), based on CY25 P/Bk multiple of 0.4x. The current valuation is undemanding, with the stock trading at a CY25 P/B of 0.24x, notably lower than the sector average of 0.8x. Maintain Buy call on Glomac.

Source: TA Research - 20 Sept 2024