Matrix plans to operate construction works at 115% capacity (by working overtime) to catch up on its schedule by year-end. Note that the past two months were on track whereby construction works have been going at 120%. Given the current market conditions, management continues to focus its efforts on launching affordably priced products. Take up for the recently launched first phase of Laman Sendayan garnered a strong response (fully booked on first day of launch). Bookings remain encouraging as over RM800m was made from mid-Mar to end-July which was boosted by additional discounts provided during the MCO period (FY21 sales target stands at RM1.1bn). Maintain forecasts and BUY rating with an unchanged TP of RM2.06 based on unchanged 30% discount to RNAV of RM2.94.

We Hosted a Dial-in Session With Matrix’s Management. Below Are the Key Takeaways.

Ramped up construction works. Construction works were put on hold for close to 8 weeks during the MCO period which led to the absence of progressive billings recognition of RM160m-RM180m in revenue. As such, Matrix plans to operate construction works at 115% capacity (by working overtime) to catch up on its schedule by year-end. We remain positive on management’s efforts as we note that the past two months were on track whereby construction works have been going at 120%.

Bandar Sri Sendayan (BSS). The BSS township remains the bread and butter of Matrix which contributes to bulk of its earnings. As such, Matrix remains open to land banking throughout the township’s surroundings to expand its presence. Given the current market conditions, management continues to focus its efforts on launching affordably priced products e.g. Laman Sendayan 1 which consists of 1 & 2 storey terrace houses priced below RM500k per unit. Note that take up for the recently launched first phase of Laman Sendayan garnered a strong response (fully booked on first day of launch). On the industrial properties, less than 50 acres of land remain for sale. Management plans to focus on launching residential projects instead of industrial projects as it provides superior GDV/acreage despite commanding lower margins.

Foreign operations. In Australia, Matrix will focus on its two developments (M. Greenvale and M. St. Kilda) before considering further land-banking activities. Take up for M. Greenvale (GDV RM80m) is over 60% for now while M. St. Kilda is targeted to launch in 2021. In Indonesia, construction works for the Menara Syariah have stopped since April and will likely drag on until year-end, causing a potential delay of c.6 months. To recap, the initial completion date was targeted for 2021.

Outlook. Bookings remain encouraging as over RM800m was made from mid-Mar to end-July which was boosted by additional discounts provided during the MCO period. FY21 sales target is set at RM1.1bn (+6% YoY of FY20 actual sales) which we believe will be achievable (despite market conditions) given the encouraging response in recent months. Earnings visibility will continue to be supported by new sales and unbilled sales of 0.8x cover (RM1bn). In terms of dividends, we conservatively expect Matrix to be able to pay at least 10.5 sen per share for FY21 which translates to a yield of 6.2%. Furthermore, Matrix’s healthy balance sheet of 0.07x net gearing as of FY20 will provide the buffer to sustain through this challenging environment.

Forecast. Unchanged.

Maintain BUY with an unchanged TP of RM2.06 based on a 30% 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. This is supported by an attractive dividend yield of 6.2% for FY21 and 7.4% for FY22, being one of the highest in the sector

Source: Hong Leong Investment Bank Research - 18 Aug 2020