Matrix’s recorded FY22 core PATAMI of RM210.1m (-16.5% YoY) came in below expectations due to lower-than-expected progress billing as a result of slower construction progress arising from labour shortage. Despite the results miss, we are optimistic on the group’s prospects as it continues to achieve strong sales and take-up rate for its launches. We keep our forecasts largely unchanged and introduce FY24 forecast. Maintain BUY with an unchanged TP of RM2.54 based on a 25% discount to RNAV of RM3.39. We continue to like Matrix due to its strategically located developments well positioned to capture the spill over demand from Klang Valley.

Below expectations. Matrix recorded 4Q22 core PATAMI of RM66.1m (+9.4% QoQ, -5.6% YoY), bringing FY22’s sum to RM210.1m (-16.5% YoY). The results were below expectations forming 90% of our and 90.3% of consensus expectations. The results shortfall was due to lower-than-expected progress billing as a result of slower construction progress arising from labour shortage. Our FY22 core PATAMI was arrived at after adding back net EIs of RM5m (RM12m from PPE write-off and RM7m from reversal of assets impairment).

Dividend and bonus issue. Declared fourth interim dividend of 3.75 sen, ex-date: 21 Jun 2022 (4Q21: 4 sen). FY22: 12.5 sen (FY21: 12 sen). Proposed bonus issue of 1 bonus share for 2 existing shares, entitlement date TBD and TBA later.

QoQ. Revenue increased by 7.6% due to continuous recovery in productivity post lockdown. In line with the top line improvement, core PATAMI improved by 9.4%.

YoY. Revenue declined -35.4% due to lower revenue recognition as a result of slower construction progress due to labour shortage. Core PATAMI declined by a smaller magnitude of -5.6% compared to top line as the group achieved better GP margin of 66% (vs. 53% SPLY) due to higher revenue contribution from industrial properties.

YTD. Revenue declined -21.4% due to lower productivity as a result of labour shortage. Core PATAMI declined by -21.1% due to top line decline but partially mitigated with GP margin improvement of 55.9% (vs. 51.7% SPLY) due to favourable product mix.

Sales and launches. Matrix recorded 4Q22 sales of RM347m (-2.8% QoQ; +1.5% YoY), bringing FY22 sales to a record high of RM1.35bn (+12.1% YoY) exceeding its sales target of RM1.2bn. The group launched RM917.8m of products in FY22 (-8.2% YoY). Unbilled sales increased to RM1.3bn (+2% QoQ), representing a healthy 1.51x cover ratio of its property development revenue. For FY23, the group is setting a sales target of RM1.3bn (-3.3% YoY) and launch target of RM1.55bn (+69% YoY).

Outlook. The group continues to record robust sales in 4Q22 and achieve strong take-up rate (its residential launches in 4Q22 with GDV RM396.6m achieved 100% take-up rate). Nonetheless, revenue recognition in the quarter remain modest as a result of labour shortage in the construction sector, which limits the acceleration of site progress. While this may limit the group’s earnings in the near term, we are not overly concerned as we deem that the issue is not structural and we remain optimistic on the group’s prospects. We believe Matrix’ development situated at the Greater Klang Valley area are well positioned to capture the spill over demand from Klang Valley. This is evidenced in its Sendayan development which had in recent years attracted >60% of home buyers from the Klang Valley. The improvement in road infrastructure and connectivity to the city centre as well as the current work-from-anywhere trend (which allows workers to work in remote areas away from work location) will support the demand and house price appreciation for Matrix’ developments.

Forecast. Despite the results shortfall, we are keeping our forecasts largely unchanged as we expect contribution from its JV in Indonesia project to contribute to the group’s earnings in FY23 which will cushion the near term slowdown in the local progress billing due to labour shortage. We introduce FY24 forecast.

Maintain BUY with an unchanged TP of RM2.54 based on a 25% discount to RNAV of RM3.39. We believe Matrix’s share price will remain well supported by its generous dividend payout ratio of >50%, translating to an attractive dividend yield of 6.4-6.8% for FY23-24, being one of the highest in the sector. Its earnings on the other hand, is also well supported by its healthy unbilled sales and launch pipelines as well as strong demand due to its strategically located developments well positioned to capture the spill over demand from Klang Valley.

Source: Hong Leong Investment Bank Research - 26 May 2022