Matrix recorded 1QFY23 core PATAMI of RM47m, which 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 sustain its strong sales momentum. We lower our FY23/24 forecasts by -10.4%/-4% to account for slower construction progress impacted by labour shortage. We introduce FY25 forecast. Maintain BUY with an unchanged TP of RM2.54 based on a 25% discount to RNAV of RM3.39.

Below expectations. Matrix recorded 1QFY23 core PATAMI of RM47m (-28.9% QoQ, +48.4% YoY). The results were below our (18.1%) and consensus (18.8%) expectations. The results shortfall was due to lower than expected revenue recognition as a result of slower construction progress arising from labour shortage.

Dividend. 3 sen, ex-date: 13 Sept 2022 (1QFY22: 2 sen).

QoQ. Revenue declined by -8.6% mainly due to lower revenue recognition as a result of slower construction progress due to labour shortage. Gross profit margin also declined to 47.7% from 66% due to lower revenue contribution from industrial products of RM17.5m (-73.3% from RM65.6m) which has a better margin. Consequently, core PATAMI declined by -28.9%.

YoY. Revenue increased by +40.3% mainly due to better construction activities as there was a construction halt in June SPLY from MCO3.0. In turn, core PATAMI increased by +48.4% due to top line improvement but partially offset by a slightly lower gross profit margin of 47.7% (vs. 49.3% SPLY).

Sales and launches. Matrix recorded 1QFY23 sales of RM309.2m (-10.9% QoQ; +2.8% YoY), making up 23.8% of its full year sales target of RM1.3bn. The group launched RM317.2m of products from Bandar Sri Sendayan in 1QFY23 (vs. no launches SPLY). Unbilled stood at RM1.3bn (no changes from 4QFY22), representing a healthy 1.52x cover ratio of its FY22 property development revenue.

Outlook. The group continues to record healthy sales momentum this quarter but revenue recognition remains under pressure 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 expect a gradual improvement in the situation and 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. We lower our FY23/24 forecasts by -10.4%/-4% to account for slower construction progress impacted by labour shortage. We introduce FY25 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 as we believe its strategically located developments are well positioned to capture the spill over demand from Klang Valley. The group also has a generous dividend payout ratio of >50%, translating to an attractive projected dividend yield of 6.1% for FY23, being one of the highest in the sector.

Source: Hong Leong Investment Bank Research - 24 Aug 2022