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Tuesday, October 6, 2009

Glomac (BUY TP RM1.37)

Expanding Sg Buloh township land

Glomac announced yesterday the acquisition of 43 acres of leasehold land, which is located within its existing Bandar Saujana Utama township in Sungai Buloh, Selangor, for RM9m cash or RM4.80 psf. Development rights on the said land was previously acquired in 2004 under a joint
venture arrangement where Glomac is required to pay a guaranteed land price of RM7.31m and a share of 30% development profit to the landowner, Pertubuhan Peladang Kawasan Kuala Selangor. The joint venture agreement will be terminated upon completion of the outright acquisition. (Bursa Malaysia)

Development on the said land has already commenced in March 2009. Known as Bukit Saujana, the project is divided into 5 phases with an estimated gross development value of RM98m. Todate, a total of 85 units of double storey terrace houses has been launched with more than 80% sales achieved. The outright acquisition of the said land instead of joint venture does not change our earnings estimates. The only effect the transaction has is perhaps the acceleration of payment of purchase consideration under outright acquisition instead of 8 semi-annual instalment payments from the date of approval of layout plan under the terms of the joint venture. Funding for the outright acquisition is not a problem due to improving financial position of the company following the sale of RM72m worth of investment properties as well as RM20m raised from the recent sale of treasury shares. Going forward, we expect the company to be on an expansion trail. Currently, the company is negotiating for the acquisition of 2 commercial land in the Klang Valley. We reiterate our BUY call on Glomac for its undemanding valuation. Earnings prospect is expected to improve going forward, underpinned by unbilled sales of RM333m. Further upside will come from the successful en bloc sale of office towers in its on-going Glomac Damansara project and acquisition of new landbank. Our target price remains unchanged at RM1.37 which is based on 10x P/E on FY10 earnings.

Source : ECM Libra

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