Glomac's FY2024 Earnings Weaker Than Expected, Prompting Downgrades

Glomac Bhd's (KL:GLOMAC) latest financial year ended below market expectations, prompting two of three research houses covering the stock to downgrade it on limited upside following a recent rally.

All three research houses slashed their earnings forecasts with core net profit for the year ended April 30, 2024 (FY2024) coming in 53% lower than the consensus forecasts. AmInvestment Bank noted the Glomac's below-view earnings and lowered its recommendation to ‘hold’ from ‘buy’ while MIDF Amanah Investment Bank cut its rating to ‘neutral’ from ‘buy’.

“Earnings of Glomac [are] unexciting” though sales prospects are expected to remain stable, MIDF said. While unbilled sales of RM504 million would provide close to two years’ earnings visibility, the research house is projecting net profit to decline to RM21.2 million in FY2025.

Shares of Glomac have gained 26% so far this year amid broader rally in the property sector on the back of resilient demand and continued government support for home ownership.

Only three institutional analysts covered the stock, according to Bloomberg. The consensus 12-month target price stands at 49 sen.

For AmInvestment Bank, Glomac is currently trading at an “unexciting” valuation of 22 times its forward earnings compared to a four-year average of 14 times. “We see limited upside for the group,” it said.

For FY2024, the group’s net profit was down by 25.1% to RM23.59 million, from RM31.51 million in FY2023, due to higher construction costs and increased interest expenses. Revenue shrank 21.8% to RM266.73 million, from RM341.02 million.

However, TA Securities highlighted that Glomac saw a substantial year-on-year increase in new property sales in the fourth quarter ended April 30, 2024 (4QFY2024) to RM217 million from RM148 million.

The research house continues to recommend that investors buy the stock and raised its target price to 63 sen from 47 sen previously on higher valuations amid re-rating in the property sector. “We believe the potential downside to the share price is limited, supported by a robust free cash flow of 16 sen per share,” it added.

Shares of Glomac were up by one sen to 45.5 sen at Friday’s noon break, valuing the group at RM364 million.