Analysts positive on Glomac’s Cheras landbank
KUCHING: Analysts are generally positive on Glomac Bhd’s (Glomac) Cheras landbank sale to PR1MA for RM145.6 million.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), Glomac has announced that the group is disposing its landbank measuring 41 acres in Cheras to Perbadanan PR1MA Malaysia.
Post disposal, Glomac is estimated to still have balance landbank of two acres in which MIDF Research believed will be utilised for the group’s Suria Residen property project.
“The expected completion date for the deal is March 31, 2016,” the research arm said.
The research arm noted that net gain from the sale of the landbank is RM83.6 million or RM0.12 per share. While it is lower than the market asking price of around RM100 per square foot (sq ft), MIDF Research believed that the 18 per cent discount is justified due to the sizable plot of land involved in this deal.
MIDF Research viewed this transaction positively as the value of RM82 per sq ft is higher than the research arm’s previous value of RM72 for the same landbank.
“Additionally, Glomac net gearing is expected to decline to 0.25fold (from 0.35-fold currently).
“Lastly, Glomac Book Value should increase to RM1.42 per share (from RM1.31 currently),” it said.
The research arm of TA Securities Holdings Bhd (TA Research) was also positive on the deal as it would allow Glomac to unlock the potential value of the group’s landbank.
TA Research saw the monetisation of Glomac’s least strategically located landbank to further strengthen the group’s balance sheet as a prudent way to weather the current headwinds in the property sector.
“In addition, the cash proceeds will also help to free up resources to fund future landbanking activities and initial start-up expenses for its Glo Damansara Damansara Shopping Mall, which is slated to open in November 2015,” the research arm said.
TA Research lifted its financial year 2016 (FY16) earnings forecasts by 88 per cent after factoring in net gains from the proposed disposal.
TA Research raised its FY16 dividend per share assumptions to seven sen from 4.5 sen previously, assuming the company will pay 20 per cent of the net gains as dividend, the research arm’s projected FY16 dividend/share translates to a payout ratio of 29 per cent, which the research arm thought was conservative as Glomac has been paying 33 to 40 per cent of the group’s profits as dividends in the past years.
Following the change in earnings, TA Research upgraded the recommendation to ‘buy’ from ‘hold’ as it expected share price to react positively to the disposal.
“Further, we believe Glomac’s sales to remain relatively resilient as compared to other small-cap developers under our coverage, given the group’s portfolio consists mostly landed township projects in the Klang Valley,” the research arm said.
On the other hand, MIDF Research noted FY16 net profit increased by 90 per cent to RM177 million but core net profit was unchanged. It further noted that this is in line with the gain of RM83.6 million expected from this deal.
“FY17 core net profit is increased by five per cent to RM103 million due to savings resulting from lower interest cost after the decline in net gearing,” the research arm said. As such, MIDF Research maintained ‘buy’ with a higher target price of RM1.08 per share.
“Suria Residen landbank value has been increased to RM82 per sq ft,” it said.
The research arm’s valuation methodology of 20 per cent discount to revalued net asset valuation (RNAV) is unchanged.