Results

• Below expectations: Matrix?s 1QFY18 core earnings contracted to RM45.6m (-12.3% YoY), accounting for 18.2% of ours and 20.6% of consensus full year earnings forecasts, respectively.

Deviation

• Mainly due to slower stage of completions and lower billings from ongoing projects.

Dividends

• Declared interim dividend of 3.75 sen (going ex on 12 Sep), representing about 47.5% payout, in line with our assumption.

Highlights

• QoQ: 1QFY18 revenue increased by 7.1% due to higher contribution from the sales of industrial properties while core PATAMI was down by 8.1% due to higher selling and marketing expenses aided by lower effective tax rate and the absence of ESOS expenses as was in 4QFY17.
• YoY: 1QFY18 revenue and core PATAMI dropped by 11.9% and 12.3% respectively, due to slower stage of project completion and lower progressive billings.
• New property sales in 1QFY18 achieved RM295.1m (vs RM193.1m 4QFY17), on course to meet FY18 sales target of RM1.1bn. Sales were mainly derived from its flagship Bandar Sri Sendayan (BSS) in Seremban and Bandar Seri Impian in Kluang.
• Matrix had launched RM630.2m worth of projects in the current quarter under review including projects such as Suriaman 2, Hijayu Resorts Homes, Ara Sendayan, Impiana Damai 1 and Impiana Casa 3B, clocking in encouraging take-up rate.
• Another RM764.5m GDV worth of project is expected to be launched in FY18, lifting the total ongoing developments from the current RM2.42bn to exceed the RM3bn mark.
• Total unbilled sales stands at RM933.3m, improved from RM859.5m last quarter, representing 1.2x over FY17 property development revenue.
• To recap, the proposed 1 for 4 bonus issues during end of FY17 has been approved in AGM recently and is expected to complete in 2QFY18.

Forecasts

• We delay the recognition of unbilled sales and Carnegie as well as update the annual report figures. In turn, this has led to revisions in our FY18 and FY19 earnings forecasts by -15% and -7%, respectively.

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 its dividend yield is one of the highest in the sector.

Valuation

• Maintain BUY with lower TP of RM2.95 (from RM2.98) based on unchanged 20% discount to RNAV of RM3.68.

Source: Hong Leong Investment Bank Research - 19 Sep 2017