News

• Through its subsidiary Matrix IBS Sdn Bhd, Matrix Concepts (80%) has entered into a joint venture (JV) with Nissin Ex. Co. Ltd (12%) and Nihon House Corporation (8%) to set up a manufacturing plant to manufacture prefabricated building materials using the technology of Industrialised Building System (IBS).

• The factory will be located at its Sendayan TechValley, Bandar Sri Sendayan with a planned capex of RM30m (excluding the cost of a 12 acre industrial land). The factory is expected to be completed in 3QCY18 and has a production capacity of 700 terrace houses p.a.

Highlights

• We are positive on this development as Matrix stands to benefit from the transfer of IBS technology from both the reputable Japan counterparts, potential cost savings, better built quality and improve efficiency.

• We expect no immediate material financial impact with the capex to be generated via internal funds. Utilisation of the prefabricated building materials (30% of capacity as first phase to ensure quality) is targeted for selected in house development from 2HFY19 onwards.

• We understand that the cost for IBS building materials is higher than the traditional materials by 5-10% for residential projects. However, net margin should not be affected as potential savings from (i) shorter construction period (by up to 30%); (ii) material wastage reduction; and (iii) tax incentive from the investment would be more than enough to offset the incremental cost.

• While the manufacturing plant is currently targeted to fulfil their in-house development, the JV does not rule out the possibility to supply to other housing developers in the longer term when IBS is widely adopted by the industry.

• Overall outlook for Matrix remains favourable as it is on track to achieve its RM1bn sales target after hitting its 9MFY17 sales of RM837m. Current unbilled sales stand at historical high of RM904m, representing 1.6x over property development revenue. The immediate pipeline launches for CY17 amount to circa RM1bn.

Forecasts

• Unchanged.

Rating

BUY ( ↔ )

• We continue to like Matrix as it is well-positioned to ride on affordable housing theme (majority products are below RM600k) within its successful township. HSR is a long term catalyst and dividend yield is one of the highest in the sector at circa 6%.

Valuation

• Maintain BUY with unchanged TP at RM2.89 (based on unchanged 20% discount to RNAV of RM3.61).

Source: Hong Leong Investment Bank Research - 14 Apr 2017