The longer restrictions during Jul-Sept had affected Matrix’s construction activities and expected to weigh down the earnings in 2QFY22. However, booking of properties has been strong (RM700m achieved to date) and its conversion to sales started to pick up towards end-Aug as more government agencies began to operate at full capacity. Construction activities also started to resume since late Aug at >100% capacity. Hence, we believe any shortfall experienced during 2QFY22 will be compensated later through higher productivity. Maintain our forecast and BUY recommendation with an unchanged TP of RM2.20 based on 35% discount to RNAV of RM3.39.

We Hosted a Meeting With Matrix Recently With the Following Key Takeaways:

2QFY22 updates and expectations. Matrix guided that 2QFY22 will likely be its worst quarter due to longer days of restrictions from lockdown implemented by government. Nonetheless, we gathered that there could be some potential reprieve to earnings as its construction activities has been picking up (at more than 100% capacity) since late August. Earnings execution should improve in 3Q-4QFY22 in tandem with looser restrictions. To recap, after MCO1.0 was lifted last year, Matrix operated its construction works at 120% capacity and was able to catch up on its schedule within 6 months.

Sales and booking. Booking remained strong with RM700m achieved since June. Conversion from booking to sales has started to pick up towards end-Aug as more government agencies began to operate. Management shared that current conversion rate is at >50%. We understand that this could be slightly higher compared to pre pandemic levels if not for stringent bank approval and lockdowns that hindered the SPA process. Overall, management is still confident of achieving RM1.2bn sales target for FY22, having already achieved confirmed sales of RM300.9m in 1QFY22 and RM700m booking pipeline.

Launches. We understand that some of the targeted launches of RM1.6bn GDV might be pushed back to FY23 (RM375m worth of GDV from Cheras project potentially be postponed). A new phase of Bayu Sutera (average selling price of RM540k per unit) has been launched in Aug and received an encouraging take up rate of c.98% to date. Recently, management also did a soft launch on the new phase of Tiara Sendayan and is confident with the take up rate since it has been the best seller for Matrix.

Menara Syariah, Indonesia. The progress construction of Menara Syariah project (RM1bn GDV) is currently at 4th floor (out of 27th floor). Management is targeting to complete construction by FY23 and should contribute positively at JV level. Any launches and sales activities will be carried out once the project near completion.

Outlook. We believe Matrix sales momentum is sustainable given the appealing product mix that they have in pipeline. Hence, we believe any shortfall experience during these 2QFY22 will be compensated later through higher productivity.

Forecast. Maintain.

Maintain BUY with an unchanged TP of RM2.20 based on 35% discount to RNAV of RM3.39. 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 5.4-6.4% for FY22- 24, being one of the highest in the sector.

Source: Hong Leong Investment Bank Research - 15 Oct 2021