This article first appeared in The Edge Financial Daily on March 19, 2020

Glomac Bhd
(March 18, 27 sen)
Maintain hold with a lower target price of 28 sen: Glomac Bhd is scheduled to announce its third quarter ended Jan 31, 2020 (3QFY20) results next week. We estimate that net profit will come in at RM4.5 million to RM6.5 million and bring cumulative nine-month (9MFY20) net profit to RM13.5 million-RM15.5 million or 72%-82% of our full-year earnings projection.

With that, Glomac’s 9MFY20 net profit is set to jump 287% to 344% year-on-year (y-o-y). We foresee a pickup in development activities from new projects and margin expansion from overall administrative cost savings to underpin its 3QFY20 earnings.

Recall that Glomac’s 2QFY20 sales surged by 151% y-o-y and 654% quarter-on-quarter to RM181 million, and brought first-half (1HFY20) sales to RM205 million (+25% y-o-y). The stronger sales performance was largely boosted by the maiden launch of 121 Residences in Petaling Jaya (gross development value: RM321 million).

After its official launch in September, Tower A of 121 Residences — featuring 445 serviced apartments and small office and home office units — was 70% sold (from RM300,000 per unit or RM750 per sq ft). Bread-and-butter townships, such as Bandar Saujana Utama, Sri Saujana in Johor and Saujana Rawang, also contributed to the group’s 1HFY20 sales. Higher 2QFY20 sales lifted the group’s unbilled sales to RM552 million from RM432 million a quarter ago, providing the group with earnings visibility for more than 12 months.

Assuming that Tower B of 121 Residences achieve a conservative take-up rate of about 50%, this would bring the overall take-up rate of 121 Residences to 60%. We estimate that 3QFY20 property sales will come in at RM120 million to RM130 million, driven by sales of RM70 million to RM80 million from 121 Residences and RM50 million from other existing projects. That said, we project that Glomac will rake in 9MFY20 sales of RM325 million to RM335 million, surpassing new sales of RM214 million and RM323 million achieved for FY18 and FY19 respectively.

Nonetheless, we think it could be a daunting task to achieve sales of RM165 million to RM175 million in 4QFY20, no thanks to a gloomy macroeconomic outlook arising from the Covid-19 outbreak and local political uncertainties. The imposition of the movement control order for 14 days would dampen sales further.

We maintain our FY20 earnings projections but cut our FY21 and FY22 earnings forecasts by about 44%. We also reduce our dividend per share assumptions to 0.8 sen for FY20 to FY22 — from one sen, two sen and 2.1 sen respectively previously. — TA Securities, March 18