Glomac Bhd (Maybank IB Research) buy; target price RM2.38

Deep value, strong upside potential

Growth intact on strong sales. We expect 9MFY11 results, due on 31 Mar, to be in line (+70% YoY). Glomac will very likely beat its RM500m FY11 sales target thanks to strong take-up at Glomac Damansara (GD), lifting unbilled sales above the RM1b mark, a new record. This excludes potential enbloc sales worth up to RM445m, some of which are at advanced stages of negotiations. We raise earnings forecasts by 6-11% and RNAV by 11%. Our TP is upgraded to RM2.38 (20% discount to RM2.97 RNAV). Glomac is our top small-cap property pick.

Glomac Damansara, the jewel. GD Residence Tower 1 (RM630 psf ASP) is almost fully sold in less than 2 months of launch. Apart from its prime location, we believe the strong take-up was also driven by the proposed TTDI MRT station (less than 10 minutes drive). Given the strong demand, Glomac plans to launch the remaining residential tower (RM650 psf ASP) by end-Mar’11 and boutique mall retail lots (RM650-1,200 psf) by Apr’11. In our view, these launches could be another complete sell-out. Both boutique mall retail lots (RM145m GDV) and GD Residences (Tower 1 and 2; RM284m GDV) are expected to boost Glomac’s FY11 sales to RM574m, 15% above its FY11 target, and unbilled sales to a record high of RM1b (1.8x of our FY12 forecast).

Puchong: Right location, right product. We believe the new RM800m GDV Puchong landed property project will be another fast-seller given its prime location (see Figures 2 & 3). The project will allow Glomac to tap on the fast-growing Puchong property market and we view this project as the next earnings kicker after Glomac Damansara. Assuming 30% pretax margin and 5 years development period, this project could boost our FY12-13 earnings by 3-16%, RNAV by 11%.

Earnings upgrade. We raise our FY11-13 forecasts by 6-11% to factor in the new Puchong project and better-than-expected sales for GD. Our RNAV has been raised to RM2.97 (+29sen), with further upside potential from the: 1) RM280m Plaza Kelana Jaya - Phase 4 enbloc sales (see Table 1); and 2) prime land acquisition in the city centre. The potential city centre landbank, which could be worth RM2-6b in GDV, could enhance our RNAV estimate by a further 14-43% (see Table 2).

Glomac Damansara continues to shine

Expect strong response for GD boutique mall retail lots. The soon-to be-launched boutique mall, which shares a similar concept as Sunway Giza and Empire Mall, will be sold on a strata basis. The 3-storey boutique mall will have a total NLA of over 180,000 sq.ft.. It is divided into 84 units of retail lots (RM650-1,200 psf ASP; size ranging within 775-3,078 sq.ft.), a supermarket lot (28,000 sq.ft.), an exhibition area and a yet-to-be designated retail space. The retail lots have thus far clocked in a few hundred registrants. Based on this, we can deduce that the retail lots could be another complete sell out.

Record RM1b unbilled sales by end-FY11? Both GD boutique mall and GD Residences comprising Tower 1 (sold-out) and Tower 2 (to be launched) has a combined RM429m GDV. They are expected to lift Glomac’s sales to RM574m assuming full take-up in the current FY11 (from RM145m in 6MFY11), which will be 15% higher than Glomac’s FY11 RM500m sales target. Unbilled sales meanwhile are expected to cross the RM1b mark by end-FY11 (from RM572m as at Oct’10; 1.8x of our FY12 forecast). To improve the marketability and accessibility of the GD project, Glomac is now considering building a covered walkway to the proposed TTDI MRT station.

Puchong, the next earnings kicker

“Goldmine” in Puchong. We expect Glomac’s new Puchong project (semi-D and terrace houses) to receive strong demand, especially from the young couples and/or upgraders on two reasons:

1) Prime location. The project is close to established commercial and retail hubs in Puchong (e.g. Tesco Hypermarket and IOI mall) and the new LRT station under the proposed Ampang LRT line extension, and

2) Affordable pricing. We understand that the terrace houses will be priced from RM400k onwards (no details on price psf for now, but we understand that the sub-sale asking prices for neighbouring Mutiara Puchong are from RM480k onwards). Glomac’s management is planning to launch this gated landed property project by 2HCY11.
RM800m GDV potential. To recap, Glomac has proposed to buy c.200 acres of leasehold land in Puchong from Score Option S/B in Jan 2011 for RM77m cash (or RM19.6 psf vs. RM32-48 psf asking/transacted prices around the Puchong area). Glomac had a previous JV with Score Option, leading to the launch of Lakeside Residence Phase 1 (102 units of terrace houses) in 2005. However, due to disputes, the development of subsequent phases was put on hold. Excluding the units sold and vacant lots, the land has c.90-120 acres remaining to be developed with an estimated RM800m GDV.

Valuation and recommendation

Higher RNAV due to the new Puchong project. The 29sen upgrade in our RNAV is mainly due to the inclusion of the Puchong project, apart from the change in take-up assumptions for GD boutique mall retail lots and GD Residences. Three key contributors to our RM2.97 RNAV estimates are:

1) Glomac Damansara (11% of RNAV; RM850m GDV),
2) Puchong Lake Residence extension (10%; RM800m GDV) and
3) Glomac Cyberjaya projects (5.8%; RM458m GDV).

Reiterate Buy. We continue to like Glomac for its strong 41% 3-year forward EPS CAGR supported by attractive valuations. The stock trades at single-digit PERs (7x 2011), 41% discount to our RM2.97 RNAV and 11% to its RM1.96 NTA (as at Oct 2010). There is also further upside to our earnings forecasts, RNAV and target price for we have yet to factor in the potential:

1) RM280m enbloc sales of Plaza Kelana Jaya-Phase 4, which could add 9.9 sen to our RNAV (assuming 25% margin and 4 years development period) (see Table 1) and
2) potential prime land acquisition in the city centre (see Table 2) which could enhance our RNAV by 42-127 sen assuming RM2-6b GDV.