Saturday, October 12, 2013

Glomac : Disposal of Office Building in Melbourne(TA)

Glomac Bhd
Last Traded: RM 1.15
TP: RM 1.45
Disposal of Office Building in Melbourne

Asset Disposal in Melbourne
Glomac’s 45.6% owned associate, VIP & Glomac Pty Ltd (VIPG) had inked a contract to dispose of its office building in Melbourne CBD, Australia to Hiap Hoe Limited, for AUD43.8mn (or RM132.7mn). The building, which is located at 380 Lonsdale Street, comprises a 7-level carpark with 445 bays and 5,130 sqm of office and 324 sqm of retail space.


Our View
Through VIPG, this was Glomac’s first foray in overseas back in 2006. According to announcement, VIPH’s initial cost of investment was AUD30.5mn. We are not surprised by this disposal as we understand that the group is looking to unlock the value of its overseas investment asset. Following this disposal, the group would have no more exposure in overseas market. Note that the group had disposed its Bangkok investment (a warehouse) in Sep 2011 for RM31.0mn. We are positive on this disposal as it would provide additional cash flow to the group. In addition, the price tag of AUD43.8mn could translate to a 10% premium, if we compare it with the recent average selling prices of buildings near Lonsdale Street – see appendix 1.

Impact
The proposed sale is expected to result in a higher profit of associated company of approximately AUD5.3mn (or RM16.1mn) for FY14. We expect VIPG to distribute all disposal proceeds to shareholders and Glomac to utilize its share of RM60.8mn to pare down its borrowings. We lift our FY14-16 earnings forecasts by 0.8-9.7% after factoring in the proposed disposal and interest savings, assuming the cash proceed will be used to pare down borrowings.

Valuation
We maintain our RNAV/share target price at RM1.45/share. We reiterate our Buy recommendation on Glomac as we believe the company’s sales to remain resilient given the group’s portfolio consists mostly landed township projects in the Klang Valley.



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