Landbanking strategy paying off - GLOMAC

by **Cals** Mon 17 Jun 2013, 11:17

Landbanking strategy paying off

Business & Markets 2013

Written by MIDF Research

Monday, 17 June 2013 10:34

GLOMAC BHD []
(June 14, RM1.23)
Initiating coverage at RM1.22 with buy rating and target price RM1.46: Glomac’s core developments are gradually shifting to landed residential and township projects from mixed and high rise residential developments.

Out of the nine ongoing developments, four are landed residential projects. Total outstanding gross development value (GDV) of the landed projects accounted for 83% of the RM4.5 billion worth of ongoing developments.

Moving forward, Glomac is positioned to capture the strong demand for landed residential projects.

It has been aggressively expanding its landbank for the past two financial years. It acquired three parcels of land in 2011 financial year (FY11) and FY12 which will be developed into landed residential developments with a total GDV of RM4.5 billion.

Among the new acquisitions is the current flagship development, Lakeside Residence located in the prime area of Puchong, Selangor. Its total GDV is RM2.5 billion.

Glomac registered property sales of RM519 million as at end of nine months of its 2013 financial year ended April 30 (9MFY13), which translated into year-on-year sales growth of 51%. After taking into account robust sales of new launches like Lakeside Residence as well as strong sales momentum of ongoing projects, we believe Glomac is on track to capture sales of about RM800 million from RM1 billion worth of launches in FY13.

Glomac has lined up three new projects to launch in FY14: (i) Plaza Kelana Jaya Phase 4 with total GDV of RM250 million; (ii) Saujana Utama Phase 4 in Rawang with total GDV of RM800 million; and (iii) Dengkil township with total GDV of RM1.2 billion.

Driven by strong sales growth, earnings grew at a compounded annual growth rate (CAGR) of 19.4% for the past four financial years. Glomac’s balance sheet is healthy with net gearing ratio of 0.19 times as at end 9MFY13. It has an internal target of 0.5 times. Assuming gearing is raised to 0.5 times, it will be able to raise an additional RM250 million for landbanking activities.

Glomac has an unofficial dividend policy of 40% payout. They announced a 4.2 sen dividend in FY12 which translated to dividend yield of 3.2%. We have forecast a dividend yield of 3.2% to 4.9% for FY13 to FY15.

We are initiating coverage on Glomac with a “buy” recommendation. We arrived at our target price of RM1.46 by ascribing price-earnings ratio (PER) of 8.7 against FY14 earnings per share (EPS) of 16.8 sen. PER of 8.7 is a 10-year historical average.

We like Glomac due to the following: (i) It is on track to meet sales target of RM750 million to RM800 million and strong unbilled sales of RM827 million; (ii) Its core developments are landed residential and township projects located in prime areas or new growth areas. Landed residential property is the most resilient type of property with sustainable demand; (iii) It has a healthy balance sheet with net gearing level of 0.19 times. It has sufficient capacity to gear up for land acquisition; and (iv) Its 40% dividend payout ratio which translates to estimated dividend yield of 3.2% to 4.9% for FY13 to FY15. — MIDF Research, June 14

This article first appeared in The Edge Financial Daily, on June 17, 2013.