Targeted to launch in 2HCY19, the Iconic Twin Towers project will be the first project to be developed within the IFD. Occupying 1.4 ha of land within Phase 1, the project will be constructed over a period of 3 years and command an estimated GDV of USD200m. The remaining land of 2.2 ha will be reserved for future developments (estimated GDV of USD300m) of Phase 1. We note that the expected increase in share base from the placement will fully offset the potential upside of the project to the TP. Maintain forecasts as we deem the earnings recognition of the project to be rather fluid at this juncture. Our BUY rating with unchanged TP of RM2.17 is based on a 25% discount to RNAV.

Details on PIK 2. Spanning over 2,350 hectares (ha) of land, PIK 2 is located next to the almost fully developed (c.90%) PIK 1. Within PIK 2 is an Islamic Financial District (IFD) which is part of an initiative by the Indonesian Government to champion the Islamic finance discipline. We understand that connectivity to PIK 2 has been established i.e. toll road and a train station connected from the Jakarta Airport.

Phase 1 of the JV project. Phase 1 of the project will be located within the IFD, occupying 3.6 ha of land with a development period of over 8 years and an estimated GDV of USD500m. We gather that the land cost for Phase 1 is c.50% of the PIK 1 prime land (Rp20m sqm compared to Rp40m sqm); this is largely due to the JV partner, BKS, being jointly owned by Salim Group and Agung Sedayu Group (master developer of PIK 2).

Iconic Twin Towers. We note that the capital raised from the proposed placement will be used to fund the entire 3.6 ha land cost and initial development cost of the Iconic Twin Towers project. Targeted to launch in 2HCY19, the project will be the first project to be developed within the IFD. Occupying 1.4 ha of land within Phase 1, the iconic twin towers will be constructed over a period of 3 years and command an estimated GDV of USD200m.

Other developments in Phase 1 to come. The remaining land of 2.2 ha will be reserved for future developments (estimated GDV of USD300m) of Phase 1, which has yet to be announced. We gather that proceeds from the Iconic Twin Towers project will be used to fund further developments of Phase 1; management does not foresee the need to further raise funds.

Outlook. We estimate the development will yield Matrix with a NPV of RM30m, assuming PBT margin of 18% at WACC of 10%. However, we calculate that the increase in RNAV/share will be fully offset by the increase in share base (EPS dilution of 9.1% arising from the proposed placement). Nonetheless, we remain positive on the long term outlook of the JV as this establishes a platform for opportunities to further develop projects in PIK 2. Note that only c.10%-15% of PIK 2 have been developed.

Forecast. Management expects contributions to come only in 2021, with further clarity to be given on the matter moving forward. As such, we maintain our forecasts as we deem the earnings recognition of the project to be rather fluid at this juncture. Maintain BUY with unchanged TP of RM2.17 based on 25% discount to RNAV of RM2.90 after imputing the RNAV of the project but offset by the dilution of share base. We continue to like Matrix as it is well-positioned to ride on the affordable housing theme within its successful townships with cheap land cost and sustained property sales. This is supported by an attractive dividend yield of 6.3% for FY19 and 7.1% for FY20, being one of the highest in the sector.

Source: Hong Leong Investment Bank Research - 18 Mar 2019