1QFY22 core PATMI of RM31.7m (-67.9% QoQ, +2.0% YoY) were below expectations dragged by lower progressive billings from the affected construction activity due to lockdown. 1QFY22 sales came in at RM300.9m (25% of its full year target of RM1.2bn). We decrease our forecast by 18%/12% for FY22-23 to account for slower progressive billings recognition. Maintain BUY with a higher TP of RM2.20 (from RM2.16) based on 35% discount to RNAV of RM3.39 as we recalibrate our valuation to reflect the changes in forecast coupled with the rollover of valuation. Despite earnings missed, we believe overall earnings execution should pick-up in tandem with looser restrictions.

Below expectations. Matrix reported 1QFY22 core PATMI of RM31.7m (-67.9% QoQ, +2.0% YoY). The results were below expectations forming 11% of our and consensus full year forecasts, dragged by lower progressive billings from the affected construction activity due to MCO3.0 and Phase 1.

Dividend. Declared single tier first interim dividend of 2.0 sen (1QFY21: 2.0 sen; 4QFY21: 4.0sen) per share going ex on 22 Sept 2021.

QoQ. Core PATAMI contracted by 67.9% on the back of lower revenue by 57.9% dragged by lower property sales (-12%) and lower progressive billing recognition from the affected business operation activities during NRP Phase 1 restrictions.

YoY. Despite chalking in lower sales (-14% YoY), revenue remained largely flattish (+0.9%) from a higher progressive billings recognition this quarter as NRP Phase 1 was less restrictive compared to MCO 1.0. In turn, core PATAMI also stayed steady (+2%).

Sales and launches. 1QFY22 new sales came in at RM300.9m, representing 25% of its full year target (RM1.2bn). The company has GDV of RM1.6bn in the pipeline for launches for the rest of the year with GDV of RM1.1bn in BSS as well as GDV of RM375m on its second Klang Valley project in Cheras. Unbilled sales stood at RM1bn (1.0x cover ratio).

Outlook. As the shortfalls in earnings were largely from the lower progressive billings, we believe earnings execution will pick-up in tandem with looser restrictions as the company is able to do a “construction boost” later. To recap, after MCO1.0 was lifted, Matrix operated its construction works at 120% capacity (by working overtime) to catch up on its schedule. Management shared that bookings during NRP Phase 1 (June and July) remained strong at RM359m (which some of these already converted into sales). To date, Matrix has managed to get close to 100% of its employees vaccinated while >90% of its construction workers have received 1st dose. Hence, we believe Matrix is well positioned to capitalise on the anticipated strong recovery in the later part of this year.

Forecast. We decrease our forecast by 18%/12% for FY22-23 to account for slower progressive billings recognitions. Introduced FY24 earnings at RM278.7m.

Maintain BUY with a higher TP of RM2.20 (from RM2.16) based on 35% discount to RNAV of RM3.39 as we recalibrate our valuation to reflect the changes in forecast coupled with the rollover of valuation. Despite earnings missed, we believe overall earnings execution should pick-up in tandem with looser restrictions. 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 5.5-6.5% for FY22-24, being one of the highest in the sector.

Source: Hong Leong Investment Bank Research - 26 Aug 2021