Matrix’s 1QFY19 core PAT of RM50.2m (+10.1% YoY) was below expectations mainly due to lower-than-expected margin. Declared dividend of 3.5 sen per share. The higher QoQ and YoY results were attributed to higher recognition from the ongoing projects albeit at a lower margin. We expect stronger subsequent quarters with overseas contribution, sustainable strong sales and 1.5x cover of unbilled sales. We lower our FY19/20 earnings forecasts by 16.1%/10.8%, respectively to account for lower margin and higher sales assumptions. Maintain BUY with unchanged RNAV-based TP of RM2.21.

Below expectations. 1QFY19 revenue of RM230.0m translated into core PATAMI of RM50.2m which came in below our expectations, accounting for 17.7% and 20.1% of HLIB and consensus full year forecasts, respectively. The deviation is mainly due to lower-than-expected margin.

Dividend. Declared 1st interim dividend of 3.5 sen per share (1QFY18: 2.6 sen) going ex on 19 Sept 2018, representing an annualized yield of 6.3% at current price.

QoQ. 1QFY19 revenue rose by 35.0% mainly contributed by the higher recognition from the sales of ongoing development in both residential and commercial properties. Nevertheless, core PAT only increased by 14.2% mainly due to overall lower margin of product mix recognized as well as higher SG&A cost.

YoY. Revenue for 1QFY19 grew by 33.1% attributed to higher progress billing from the ongoing projects and better property sales. However, the product mix recognized for the quarter comprised of more affordable products. As such, core PAT only improved by 10.1% given the lower blended margin.

Strong 1Q sales. Matrix clocked in total sales of RM381.6m (+29.3% from 1QFY18) in 1QFY19 (despite GE14 factors) attributable to the growing demand of their township and affordable pricing point. This is on track to meet the full year target of RM1.1bn. Besides, unbilled sales remained healthy at RM1.2bn (4QFY18: RM1.1bn), representing a cover ratio of 1.5x.

Outlook. We expect subsequent quarters to be stronger with the recognition of its Carnegie project in Australia coupled with the strong new sales (+29.3% YoY) and unbilled sales of 1.5x cover. For FY19, there are a total of RM1.6bn worth of projects (FY17: RM1.2bn) are expected to be launched, including the newly launch of Chambers KL.

Forecast. We lower our FY19 and FY20 earnings forecasts by 16.1% and 10.8%, respectively after lowering our margin but marginally offset by higher sales assumptions.

Maintain BUY with unchanged TP of RM2.21 based on unchanged 25% discount to RNAV of RM2.94. We continue to like Matrix as it is well-positioned to ride on affordable housing theme within its successful townships with cheap land cost and sustained property sales. Dividend yield of circa 6% is one of the highest in the sector.

Source: Hong Leong Investment Bank Research - 28 Aug 2018