Assessing Glomac Berhad's Intrinsic Value: A DCF Analysis of Undervaluation and Growth Potential

Glomac Berhad, a stalwart in Malaysia's real estate sector, has long been a subject of debate among value investors. With its FY2025 financial results now public, the opportunity to reassess its intrinsic value through discounted cash flow (DCF) analysis becomes compelling. This article delves into the company's financial health, growth prospects, and the stark disconnect between its market price and calculated intrinsic value.

Financial Performance: A Mixed Bag of Challenges and Resilience

Glomac Berhad's FY2025 annual report reveals a revenue decline to RM238.3 million, a 10.9% drop from RM267.6 million in FY2024, attributed to reduced development activities in its Property Development segment GLOMAC DCF Valuation - Glomac Bhd^[2]. However, the company managed to eke out a marginal increase in profit before tax (PBT) to RM33.4 million, driven by improved gross profit margins and lower finance costs GLOMAC DCF Valuation - Glomac Bhd^[2]. Free cash flow (FCF) for the period stood at RM80.3 million, underscoring its ability to generate liquidity despite headwinds GLOMAC DCF Valuation - Glomac Bhd^[2].

The company's strategic pivot toward high-margin projects—such as commercial units and semi-detached houses—has proven effective. For instance, its Serai@SBCR project achieved full sales by year-end, contributing RM332 million in new sales Glomac Berhad Q4 2025 Latest Quarterly Report Analysis^[1]. Looking ahead, Glomac plans to escalate its annual property launch value to RM700–800 million in FY2026, up from RM400–500 million in FY2025, signaling confidence in market recovery GLOMAC DCF Valuation - Glomac Bhd^[2].

DCF Analysis: A Case for Undervaluation

To estimate Glomac's intrinsic value, we apply a DCF model, a cornerstone of fundamental analysis. The process hinges on three critical inputs: free cash flows, the weighted average cost of capital (WACC), and the long-term growth rate.

Free Cash Flows and Growth Projections

Glomac's FY2025 FCF of RM80.3 million serves as the baseline for projections. Analysts at Alpha Spread estimate that the company's FCF will grow at a conservative 0.5% annually post-2025, aligning with Malaysia's GDP growth trajectory GLOMAC DCF Valuation - Glomac Bhd^[2]. This assumption is prudent given the company's focus on mature markets like the Klang Valley and Johor, where demand for landed properties remains resilient GLOMAC DCF Valuation - Glomac Bhd^[2].

Weighted Average Cost of Capital (WACC)

The WACC, a measure of the company's cost of capital, is a contentious point. GuruFocus calculates Glomac's WACC at 3.89%, factoring in a risk-free rate of 4.108%, a beta of 0.38, and a 54.49% tax rate GLOMAC DCF Valuation - Glomac Bhd^[2]. However, the DCF model used by ValueInvesting.io assumes a higher WACC of 8.4%, reflecting a more cautious view of market risks GLOMAC DCF Valuation - Glomac Bhd^[2]. For this analysis, we adopt the 8.4% WACC to ensure a conservative intrinsic value estimate.

Intrinsic Value Calculation

Using the DCF model, Alpha Spread derives an intrinsic value of 0.677 MYR per share for Glomac, compared to its current market price of 0.305 MYR—a 55% undervaluation GLOMAC DCF Valuation - Glomac Bhd^[2]. The calculation incorporates a 5-year discounted cash flow of RM113.8 million and a terminal value of RM406.4 million, discounted at 8.4% GLOMAC DCF Valuation - Glomac Bhd^[2]. Even under a base-case scenario, the stock appears significantly mispriced.

Strategic Catalysts and Risks

Glomac's robust balance sheet, with a net gearing ratio of 0.1 and RM15.2 million in net income for FY2025 GLOMAC DCF Valuation - Glomac Bhd^[2], provides a buffer against economic volatility. Its RM7 billion gross development value (GDV) pipeline further insulates it from short-term market fluctuations GLOMAC DCF Valuation - Glomac Bhd^[2]. However, risks persist. The real estate sector remains sensitive to interest rate hikes and regulatory shifts, while execution risks in high-margin projects could dampen growth.

Conclusion: A Compelling Value Proposition

Glomac Berhad's DCF-derived intrinsic value of 0.677 MYR starkly contrasts with its current market price of 0.305 MYR, suggesting a potential 122% upside. While the company faces industry-specific challenges, its strategic focus on high-margin developments, disciplined cost management, and a strong balance sheet position it to capitalize on Malaysia's long-term real estate demand. For investors with a medium-term horizon, Glomac presents a compelling case of fundamental undervaluation.