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Friday, May 23, 2014

MATRIX CONCEPTS - More Excitement in the Pipeline


We attended Matrix's post result briefing and came away feeling reassured of its prospects. While management appears to be more conservative given the recent property cooling measures, we are comfortable with our FY14E sales estimates of RM800m, which is only 2% higher YoY. Additionally, we also share management’s views that property momentum will pick up in 2H14, particularly for the mass housing market as genuine buyers would want to lock in properties purchases before the implementation of GST. Events to look forward to are: (i) more industrial land sales from Sendayan TechValley (STV), (ii) replenishment of more industrial landbanks in Seremban this year. We continue to like Matrix for its net cash position and strong dividend yields of 6.1% for FY14 and thus, reiterate our OUTPERFORM call and TP of RM4.80.

Landbanking efforts. Matrix is actively looking to replenish its industrial landbank in Seremban and we gather that they are in the process of locking in acquisitions. While details are still lacking at this juncture, we strongly believe that their reputation and strong standing with the Negeri Sembilan state government will lend them a massive advantage. The group is comfortable in a net gearing position of 0.1x after fully paying for their land obligations for the Labu and Kemayan lands, implying ample room for acquisitions. Currently, Matrix has submitted the layout plans for the Kemayan land and will be submitting for Labu land by 3Q14. As for their maiden KL land at PWC, layout plans will be submitted next month, although the project will only be launched in 2H15.

Launch target is slightly higher than earlier guidance. The group is targeting to launch RM763m worth of residential and commercial properties, mainly in Bandar Sri Sendayan. Launches are skewed towards 2H14 where the group will launch Hijayu 3Q@BSS, Lobak Commercial Center@ Seremban and Third 9 Residence @ Seremban. This is slightly higher than the earlier launch guidance of RM660m. Also, FY14 launch of total RM763m does not include industrial lot sales and the group is looking to lock-in a minimum of RM100m worth of industrial land sales from STV.

A slow 1Q14 but more to come. Although 1Q14 sales of RM125m made up 16% of our sales target of RM800m, there was an absence of industrial land sales from STV while launches for the year are skewed towards 2H14. The group is in discussions to sell up to 75 acres of STV industrial land, which has an estimated value of RM130-147m. Their STV landbank can last them up to 2015-16 and also includes a portion which will be sold on a developed basis to SMEs (GDV: RM200m), catering to the industrial giants at STV.

No changes to earnings estimate. We believe that 2Q14 earnings may see a QoQ improvement as billings pick up pace. For now, we are comfortable with our FY14E total sales target of RM800m. The company will continue to maintain its minimum 40% dividend payout policy. We opine that the company may reward shareholders at a slightly higher payout of 45% given their comfortable balance sheet and strong cash flow, especially when the STV land sales kicks-in. Hence, we continue to estimate NDPS of 25 sen (post bonus: 16.7 sen) which implies 6.1% dividend yield, which is better than most large cap developers (RM1b market cap) which typically provide yields of between 1% and 4%.

Maintain OUTPERFORM and TP of RM4.80 (ex-bonus: RM3.20) based on 20% discount to its FD RNAV of RM6.00 (ex-bonus: RM4.00). We continue to like the stock for its strong dividend yields and exposure to the mass-market segment. At our TP, the stock offers compelling FY14-15E dividend yields of 5.2%-5.9% for a large cap developer.


A slow 1Q14… To recap, 1Q14 sales of RM125m made up 16% of our sales target. Major sales drivers were Balista @ Hijayu 1A (Phase 2) and shop offices @ Sendayan Metropark 2 which made up 84% of sales while the remaining was driven by their township at Taman Seri Impian, Johor. The take-up rates for the shop offices @ Sendayan Metropark 2 were very strong at 94% largely driven by increased industrial activities and population in the area. Balista @ Hijayu 1A (Phase 2), which was launched in Feb-14, achieved take-up rates of 30% in 1Q14; however, we gathered that take-up rates have picked-up to 50% to date and typically, it takes them 6 months to achieve the 80% take-up mark. Notably, the volume of sold units has declined although the value per unit sold has increased; we gather that the price per unit of the landed residentials for Balista is now RM498k/unit (ASP: RM180-190psf) compared to equivalents sold in 1Q13 at RM350-380k/unit (ASP: RM150psf). Additionally, the recent property cooling measures have caused buyers to adopt a wait-and-see stance while loan approvals are proving to be more challenging. This is well within market expectations and we do expect buyers’ sentiment to pick up pace in 2H14. We also believe that management has been cautious with launches in 1Q14, like other developers, to assess the impact of the cooling measures.

…but more to come soon. Another reason for slower than expected sales in 1Q14 is the absence of industrial land sales at Sendayan TechValley (STV). Post 1Q14, the group has sold a small plot of industrial land for RM5.2m (3ac @ RM40psf). Beyond this, the group is in serious negotiations to sell up to another 75 ac of industrial land and we believe the pricing could range between RM40-45psf, which would imply RM130-147m in total land sales. This would be higher than management’s industrial lot sale target of RM100m for the year. Currently, the remaining industrial land in STV is 243.7 acres which will last till 2015-16, assuming that they sell c. 70-100ac p.a. The remaining STV land includes c. 45 acres which has been earmarked for sale of industrial properties which will cater to SMEs (estimated GDV: RM200m), as highlighted in our last company update (27/2/14).

Source: Kenanga

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