Glomac Bhd
(Dec 4, RM1.03)
Maintain “neutral” with a target price (TP) of RM1.08. Glomac’s second quarter of  financial year 2015 (2QFY15) net profit of RM13.2 million (-45.6% year-on-year [y-o-y] and -36.8%  quarter-on-quarter [q-o-q]) brought first half of financial year ending 2015 (1HFY15) net profit to only 31% and 33% of our and consensus full-year estimates, respectively. With limited new launches in 1HFY15, earnings for the quarter were mainly attributable to the progress billings from key projects such as Lakeside Residences and Saujana Rawang.

New sales performance has been lacklustre at only RM62 million for 1HFY15 (vs RM30 million in 1QFY15) due to the lack of new launches. The management continues to guide for RM824 million of gross development value (GDV) to be launched in 2HFY15. However, the project launches will likely be delayed to after Jan 1, 2015 as the management awaits the implementation of new incentives for buyers that were announced in Budget 2015 (such as the 50% discount in stamp duty). Among the major projects to be rolled out are Glomac Centro V (RM263 million GDV) and the first phase of Saujana KLIA (RM122 million GDV). The management is confident that FY15 total new sales will at least match the FY14 total of RM504 million, but we think this is rather bullish given the expected delays.

The management is also targeting FY15 dividend payout to be similar to FY14’s 4.9 sen. Unbilled sales remained resilient at RM581 million (vs RM630 million in 1QFY15).

We slash our FY15 and FY16 net profit numbers by 23% and 16% respectively, given the expected delays in new project launches. We also introduce our FY17 numbers.

We lower our revalued net asset valuation (RNAV)-based TP to RM1.08 (from RM1.28), after ascribing a higher discount to RNAV of 45% (from 35%) in light of the expected challenging environment ahead and slower earnings recovery. The key risks include further delays in new launches, weaker-than-expected sales and a slower recovery in consumer sentiment. — RHB Research Institute, Dec 4

This article first appeared in The Edge Financial Daily, on December 5, 2014.