Written by Financial Daily
Tuesday, 13 October 2009 11:27
MAYBANK Investment Bank (Maybank IB) has initiated coverage on GLOMAC BHD [] with a buy at RM1.26 and a target price of RM1.78, on its “attractive value proposition” and “explosive” earnings growth driven by upcoming high-margin commercial projects.
It expected Glomac to turn in a strong 13% EPS CAGR (earnings per share compound annual growth rate) over 2009-2012, with potential upside surprises from ongoing enbloc sales negotiations worth RM345 million.
The developer’s earnings growth was backed by a substantial margin expansion owing to an improved product mix, unbilled sales of RM484 million as at July 31, 2009, or 1.5 times financial year ended April 30, 2009 development revenue, higher RM160 million new sales between May 1 and Sept 30 (FY09: RM172 million), remaining gross development value (GDV) of more than RM3 billion to last up to eight years and RM501 million new launches targeted for FY10, it said.
“From its origins as a township developer, Glomac has successfully expanded into the upmarket segment, a feat few have been able to achieve. Flagship developments include the completed Suria Stonor, with a GDV of RM343 million, ongoing Grade A office development Glomac Tower, RM577 million, and upcoming mixed development Glomac Damansara, RM800 million, strategically sandwiched between Sprint and Taman Tun Dr Ismail,” Maybank IB said.
It also said the developer would be in a net cash position by end-FY10 following the disposal of Wisma Glomac 3, yielding cash proceeds of RM50 million, Block B Glomac Business Centre, RM23 million and treasury shares worth RM20 million.
It said with its strong balance sheet, Glomac had the capacity to take on new debt and scout for new land in the Klang Valley to underpin the next phase of its growth.
“Offering a three-year EPS CAGR of 13%, yet trading at just 8.6 times FY11 PER (price-earnings ratio), 0.5 times RNAV (revised net asset value) (and 0.7 times book value on top of gross dividend yields of between 6% and 8% over FY10-FY12, this overlooked versatile and established developer offers an attractive value proposition,” it said.
It also said the developer had an “enviable” and proven earnings track record, with 15 years of unbroken profitability, consistently delivering between RM30 million and RM40 million net profit annually in recent years.
This consistent and “boring” performance could have failed to excite the market in the past but this would soon change with an explosive multi-year earnings growth that would surpass its previous net profit level.
“Glomac is currently trading close to its historical mean PER (2001-2009) period of 8.7 times and PBV (price/book value) of 0.83 times. Nonetheless, we believe the stock deserves a higher rating given its successful completion of the high-profile Suria Stonor and ongoing Glomac Tower ventures,” it added.
Glomac rose five sen to close at RM1.31.
This article appeared in The Edge Financial Daily, October 13, 2009.