Matrix reported 3QFY23 core PATAMI of RM54.4m, bringing 9MFY23’s sum to RM152m (+5.6% YoY). The result was below our and consensus expectations. The negative deviation was due to lower-than-expected contribution from its Australia M Greenvale project. We understand labour shortage situation has seen encouraging improvement in 4QFY23, which should help to expedite its progress billings from 4QFY23 onwards. We lower our FY23f forecast by -10.1% to account for the results shortfall, but leave our FY24/FY25 forecasts unchanged. Maintain BUY with an unchanged TP of RM1.82 based on 35% discount to RNAV of RM2.80.

Below expectations. Matrix reported 3QFY23 core PATAMI of RM54.4m (+7.5% QoQ, -10.1% YoY), bringing 9MFY23’s sum to RM152m (+5.6% YoY). The result was below our (68.9%) and consensus (66.5%) expectations. The negative deviation was due to lower-than-expected contribution from its Australia M Greenvale project.

Dividend. 2 sen, ex-date: 22 Mar 2023 (3QFY22: 2.5 sen). 9MFY23: 6 sen (9MFY22: 5.83 sen).

QoQ. Revenue increased by +63.6% due to (ii) lumpy recognition of its Australia M Greenvale project (RM65.1m or 17.9% of revenue); and (ii) higher contribution from its KL high-rise project The Chambers during project completion. Despite the large top line increase, core PATAMI increased by only +7.5% due to (i) lower GP margin of 41.4% (vs. 51.1% in 2Q23) as both Greenvale and The Chambers have lower margin; (ii) higher selling and distribution cost of RM38.3m (+83.6%) due to agent fees recognized for M Greenvale project; and (iii) higher admin expenses of RM40.6m (+44.4%) due to provision for staff bonus during the quarter.

YoY. Revenue increased by +56.1% due to the same reasons as QoQ paragraph above. Despite the top line increase, core PATAMI declined by -10.1% due to (i) lower GP margin of 41.4% (vs. 58.4% SPLY); and (ii) higher selling and distribution cost (+1x).

YTD. Revenue increased by +28.2% while core PATAMI increased by +5.6% due to same reasons as YoY paragraph above.

Sales and launches. Matrix recorded 3QFY23 sales of RM340.3m (-3.5% QoQ; - 4.6% YoY) which brought 9MFY23’s sum to RM1bn (+0.4% YoY), making up 77.1% of its full year sales target of RM1.3bn. In 3QFY23, the group launched RM283.8m from its Bandar Sri Sendayan township, which brought 9MFY23 total launches to RM934.8m (+83.8% YoY). As at 3QFY23, unbilled sales stood at RM1.51bn (+8.1% QoQ), representing 1.77x cover of its FY22 property development revenue.

Outlook. We understand that Matrix has seen encouraging improvement in the labour shortage situation in 4QFY23. The group had received approval for intake of almost 400 workers, in excess of the labour they needed. As at Feb, they have received >25% of the workers they applied and the group expects to fill up all the labour they need by Mar. With this, we expect an expedition in recognition of its unbilled sales from 4QFY23 onwards. In addition, we also understand that labour cost has eased substantially compared to its peak last year. We believe the group’s upcoming new launches from its township should continue to be well received due to (i) the well established road infrastructure and facilities in its mature township; as well as (ii) the vicinity of Bandar Seri Sendayan township to the Klang Valley region which allows it to capture spill over demand from the region.

Forecast. We lower our FY23f forecast by -10.1% to account for the results shortfall, but leave our FY24/FY25 forecasts unchanged. 

Maintain BUY with an unchanged TP of RM1.82 based on 35% discount to RNAV of RM2.80. 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 stock also has a generous dividend payout ratio of >50%, translating to a decent projected dividend yield of 5.3% for FY23.

Source: Hong Leong Investment Bank Research - 1 Mar 2023