Glomac Bhd
(June 25,  80 sen)
Upgrade to buy with an unchanged target price of RM1.06: Glomac’s core net income (CNI) for financial year 2015 (FY15) of RM63 million was 15% ahead of our estimate of RM55 million and accounted for 92% of the consensus estimate of RM69 million. We had underestimated the margin for Glomac’s property development division. 

Admittedly, Glomac’s FY15 CNI declined 32% year-on-year (y-o-y) to RM63 million, which was in line with the lower revenue (-30% to RM472 million). The revenue decline was mainly due to lower recognition as a result of the completion of the Damansara Residences. Glomac’s share price tumbled 44% from its peak of RM1.41 on May 21, 2013 so we believe the market may have already priced in the lower FY15 CNI.

The increase in earnings for the fourth quarter (4Q) of FY15 was due to improvement seen in the core earnings before interest and tax margin, which increased to 30.3% (against 4QFY14’s 24.7%). Note that the impact from significant margin improvement outpaced the revenue decline of 4% to RM168 million. The profit in 4QFY15 was mainly recognised from Saujana Rawang, Glomac Centro and Reflection Residences.

Our new sales estimate of RM485 million for FY15 was slightly too conservative due to a lower take-up rate assumption for landed property projects. New sales in FY15 are also a slight improvement against FY14’s new sales of RM504 million. Looking ahead, we expect Glomac to deliver new sales of RM544 million (+8% y-o-y) in FY16 on the back of RM802 million worth of launches.  — MIDF Research, June 25

This article first appeared in The Edge Financial Daily, on June 26, 2015.