MATRIX CONCEPTS OUTPERFORM from KENANGA & HONG LEONG

MATRIX CONCEPTS OUTPERFORM
Price: RM2.87 9M14 Results Inline Target Price: RM3.48
By Sarah Lim l sarahlim@kenanga.com.my; Adrian Ng l adrian.ng@kenanga.com

Period 3Q14/9M14
Actual vs. Expectations
Matrix Concepts (MATRIX)’s 9M14 core earnings of RM126.1m was well within our, and streets’, expectations, making up 76% and 78% of ours and streets’ full-year estimates of RM167.2m and RM162.5m, respectively. However, its 9M14 sales came in below our expectations
as MATRIX only manages to rake in total sales of RM449.5m that only makes up 56% of our full-year property sales estimates of RM806.0m; note this is inclusive of Sendayan Tech Valley (STV) land sales. The shortfall was mainly due to the lack of land sales from STV for the year owing to timing issues as prospective buyers could have taken a longer approval process on their end
to invest in STV.

Dividends Second interim dividend of 3.75 sen was declared, which brings 9M14 dividends to 11.0 sen adjusted for bonus issue (3.8% yield). This is considered within expectations as 9M14 makes up 66% of our full-year estimates as we are expecting a higher dividend payout in 4Q14.
Key Results
Highlights
YoY, 9M14 core earnings of RM126.1m saw an increase of 12% from RM112.2m, supported by a marginal 4% improvement on its revenue of RM447.3m coupled with 6ppt expansion on its EBITDA margins from 45% to 51% as they were finally able to recognise the billings from its projects like Hijayu 1A (Phase 1 & 2), which further contributed to better margins.

QoQ, MATRIX’s 3Q14 pre-tax profit remains flattish at RM58.5m despite lower revenue of RM148.8m (-9%) underpinned by lower operating costs, which decreased by 14% to RM90.0m. However, its 3Q14 earnings continued to improve by 6% to RM45.1m mainly attributable to lower effective tax rate of 23% (-5ppt) due to a reversal of non-deductible expenses for tax purposes
due to an over provision in the preceding quarter.
Outlook Pending today’s briefing, we are looking to reduce FY14-15E sales estimates (currently: RM806m-RM824m) and in particular industrial land sales.As for landbanking activities, they are on the lookout for more land in Seremban and Kluang and we do expect more land deals to take place early next year given their light balance sheet. To recap, MATRIX has just replenished 164 acres of industrial land bank that is adjacent to STV back in 19-Sep-14 for RM71.0m.As of 9M14, its unbilled sales stand at RM410.5m providing at least one-year visibility.
Change to Forecasts
No changes to our FY14-15E earnings, pending today’s briefing.
Rating Maintain OUTPERFORM
Valuation We are reiterating our OUTPERFORM recommendation on MATRIX with an unchanged Target Price of RM3.48 based on our FD RNAV of RM4.35 with an unchanged discount of 20%, despite the softer outlook on the property market as we believe that MATRIX is well positioned in
the affordable housing segment and industrial developments within the Greater Klang Valley region.
Furthermore, its valuation is still cheap, trading at only 7.8x and 6.8x FY14-15E PERs coupled with decent dividend yields of 5.8%-6.6% vs. its peers average of 4.5% - 5.5%, respectively.

Risks to Our Call
Unable to meet sales targets or replenish landbank.Sector risks, including additional negative policies.(should just list down as Negeri Sembilan's MB has suggested to increase the Bumiputra's quota of new residential properties from 30% to 50% and this will  negatively affect all property developers in the state especially  Matrix -- a Ngeri Sembilan's property giant!)

Matrix (BUY çè) fro HONG LEONG INVESTMENT

9MFY14 Results In Line

• Matrix’s 9MFY14 reported PATAMI of RM126.1m came in within expectations.
• 3.75 sen net DPS was declared in 3Q14, bringing YTD DPS to 12.5 sen
• We understand that the group’s 3QFY14’s ongoing billings are largely coming from BSS and TSI. New sales during the quarter were RM159m vs. RM138m in 2QFY14.
• Matrix also launched several developments during the quarter, which totaled to RM146m.
• As at 9MFY14, the group’s total unbilled sales stands at RM410.5m, representing 0.71x of FY13’s property development revenue.
• We maintain our TP at RM3.74 (20% discount to RNAV), which implies FY15E P/E of 7.2x. Maintain BUY.