(Nov 30, 39.5 sen)
Maintain hold with a target price of 45 sen: Glomac Bhd’s net profit of RM2.1 million (-17% year-on-year [y-o-y]) for the cumulative first six months of financial year 2019 (1HFY19) and locked-in property sales of RM164 million came in below expectations. Glo Mall remained in the red and it may only turn around in FY20. We lower our earnings forecasts by -5% to -23% but maintain our revalued net asset value-based target price of 45 sen on an unchanged 0.25 times price-earnings ratio/revalued net asset value peg. Maintain “hold”.
Glomac reported a net profit for the second quarter of FY19 (2QFY19) of RM1.1 million (+4.9% y-o-y, +5.4% quarter-on-quarter), which lifted 1HFY19 earnings to RM2 million (-17% y-o-y), at just 17%/18% of our/consensus full-year estimates. We attributed the earnings gap to the higher losses incurred by Glo Mall and the slower property sales of RM214 million for FY18 (-49% y-o-y). 2QFY19 earnings before interest and tax margin, however, improved by 2.8 percentage points y-o-y to 12.7% on cost savings arising from completed projects. Elsewhere, net gearing remained unchanged at 0.28 times at end-October 2018.
Glomac’s 1HFY19 locked-in property sales of RM164 million (FY18: RM214 million, -49% y-o-y) accounted for 32% of our RM507 million sales assumption for FY19. The lower-than-expected sales were due to fewer new launches amid a weak property market. Glomac plans to launch another RM393 million gross development value worth of new projects in 2HFY19. Unbilled sales were RM429 million at end-Oct 2018 (1.9 times FY19 revenue forecast).
We lower FY19/FY20/FY21 earnings forecasts by -23%/-10%/-5% to factor in a revised lower sales assumption of RM422 million for FY19 (-17%) and slower progress billings on slower launches. Glomac has secured an internationally renowned lifestyle retailer for its Glo Mall, which will raise the mall’s occupancy rate from 45% to 77%. Outlook remains challenging especially on the affordable housing segment, which is currently facing stiff competition and huge incoming supply. — Maybank IB Research, Nov 28