Matrix’s 70% owned subsidiary (Matrix Medicare) has entered into a Management Agreement with PHM to be appointed as the exclusive service provider in respect of the management of PHM for a term of 30 years. Matrix will be effectively forking out RM16.4m for the exclusive appointment and will be entitled to 15% of the revenue generated if revenue generated is more than RM48m/year. We note that revenue generated by the centres were RM62m in 2017 and RM65m in 2018. We maintain our forecasts and BUY recommendation with an unchanged RNAV-based TP of RM2.25.

NEWSBREAK

Matrix’s 70% owned subsidiary (Matrix Medicare) has entered into a Management Agreement with Pusat Hemodialisis Mawar (PHM) whereby Matrix Medicare will be appointed as the exclusive service provider in respect of the management of PHM for a term of 30 years. Located within Bandar Seremban, PHM ceased most of its operations (the centres include a specialist hospital division, clinics and a hemodialysis centre) back in Nov-18 and has recently attained approval for a new license to operate the centres on Sep-19. The services to be provided by Matrix Medicare will include all responsibilities relating to non-clinical matters which are essentially to provide PHM with a strategic direction. Note that the hospital houses 97 beds and management is looking to open c.30 beds for the re-opening, subsequently increasing to 97 beds over the next 12 months.

HLIB’s VIEW

Positive on the news. We are positive on the news as this would allow Matrix to gain expertise in managing a hospital while providing recurring income over the longer term, albeit at a relatively small amount. Recall that a hospital will be one of the first few developments in the pipeline at Sendayan Icon park (i.e. the commercial component of Bandar Sri Sendayan).

Terms of the agreement. In consideration of PHM’s exclusive appointment of Matrix to provide the services, Matrix will be paying a sum of RM16.4m based on effective stake (paid in two tranches). Post-transaction, net gearing is expected to increase from 0.07x (as at June-19) to 0.08x. In the event that Matrix Medicare wishes to extend the agreement further, an annual sum will be paid, calculated based on RM450k/year based on 4% discounted factor at year 30 onwards. With regards to remuneration, Matrix Medicare will be entitled to 15% of the revenue generated if it is more than RM48m/year. On the other hand, if revenue generated falls below RM48m/year, Matrix Medicare will be entitled to 0% management fees.

Potential contributions. We note that revenue generated by the centres were RM62m in 2017 and RM65m in 2018. Management is confident that the centres would be able to achieve RM5m/month after 12 months of commencement. Assuming the assumption holds, this would generate Matrix c.RM5-6m to earnings based on its stake (2% of FY21 earnings) as we note that operational expenses to be incurred are minimal (as Matrix is essentially providing a managerial consultant role).

Forecast. Unchanged as we choose to remain conservative at this juncture.

Maintain BUY with an unchanged TP of RM2.25 based on unchanged 25% discount to RNAV of RM3.00. 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. This is supported by an attractive dividend yield of 6.7% for FY20 and 7.5% for FY21, being one of the highest in the sector.

Source: Hong Leong Investment Bank Research - 18 Sept 2019