Glomac Bhd - 2009

MARC has upgraded Glomac Berhad’s (Glomac) long-term rating to AID from A-ID and concurrently affirmed the short-term rating at MARC-2ID under the RM25 million Murabahah Notes Issuance Facility / Islamic Medium Term Notes (MUNIF/IMTN). The ratings carry a stable outlook. The upgrade reflects Glomac’s improved financial leverage and the turnaround in Glomac’s cash flow generation, which MARC believes will be sustained by the property developer’s sizeable future expected billings from contracted sales (unbilled sales). MARC also notes an increased reliance by Glomac on en-bloc property sales to lower its market and funding risks amid a challenging operating environment. MARC expects Glomac’s cash flow protection measures to remain strong on account of its reduced debt burden and expected positive free cash flow generation.

The group’s unbilled sales which stood at RM523.7 million as of April 30, 2009 (FY2009) should provide strong near- to medium-term earnings visibility. The bulk of its unbilled sales stems from the en bloc sale of its 40-storey office tower development, Glomac Tower in the KLCC vicinity, and sales in its commercial development, Galeria Hartamas in Sri Hartamas, KL. In addition, the group continues to maintain a healthy gross development value (GDV) of RM1 billion for its ongoing developments and has been able to line up new projects in prime locations in the Klang Valley. The upcoming projects include a mixed-commercial development, Glomac Damansara along Jalan Damansara in Petaling Jaya, which has an estimated GDV of RM800 million. The en bloc sale of an office tower component in Glomac Damansara to a government institution valued at RM170.7 million is being finalised.

The group’s strategy of selling en-bloc will enable Glomac to mitigate both funding and sales risks, particularly in the prevailing downturn in the property sector, and to use the proceeds to pare down its debt. Recent commercial/properties sold en-bloc include a 13-storey office tower, Wisma Glomac 3 to Perbadanan Nasional Bhd for RM50 million and a 9-storey office building in Glomac Business Centre to Koperasi Kakitangan Bank Rakyat Bhd for RM22.6 million.

The group has been able to reduce its borrowings, which stood at RM226.3 million in FY2009 (FY2008: RM417.4 million), with debt-to-equity (DE) ratio lowered significantly to 0.42 times (FY2008: 0.80 times), mainly due to the redemption and cancellation of its RM60 million Junior BaIDS in January 2009. In addition, in April 2009, the group fully redeemed and cancelled a borrowing facility undertaken by its wholly-owned Glomac Regal Sdn Bhd to fund the high-end development Suria Stonor project. The proceeds from this project, which has since been completed and achieved about 90% take-up, had been ring-fenced for this facility. For FY2009, Glomac registered revenue of RM345.3 million (FY2008:  RM324.3 million) and a pre-tax profit RM56.2 million (FY2008: 50.8 million) supported by a one-off fair value gain amounting to RM4.4 million from the sale of Wisma Glomac 3. Excluding the fair value gain, its pre-tax profit would still be resilient at RM51.8 million. In the same period, the group’s cash flow protection metrics strengthened, with operating cash flow increasing to RM211 million (FY2008: RM0.3 million) mainly due to increased progress billings. Glomac’s year-end cash and cash equivalent stood higher at RM152.9 million vis-à-vis short term borrowings of RM35.7 million.

For its first quarter interim results ended July 31, 2009 (1QFY2010), its revenue stood lower at RM59.0 million (1QFY2009: RM79.5 million) following the completion of its high-end Suria Stonor project. Its pre-tax profit however, recorded higher at RM15.5 million (1QFY2009: RM9.8 million) on the back of fair value gain of RM4.9 million for its Block B of Glomac Business Centre. With further repayment of its MUNIF/IMTN facility to the current outstanding of RM9.0 million, Glomac’s DE ratio declined to a comfortable level of 0.40 times in the same period. 

The stable ratings outlook reflects the expectation that Glomac will maintain its business and credit profile in line with the current ratings.

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