Matrix Concepts Holdings (Matrix) is a Seremban, Negeri Sembilan based property developer with a market capitalization of RM660m. It owns a remaining landbank of 2355ac or a total GDV of RM6.5b which provides visibility of up to 2019. Their major driver, Bandar Sri Sendayan, Seremban is a beneficiary of increasing demand for affordable homes in the Greater Klang Valley. BSS also has economic growth angles given its Sendayan Tech Valley (STV) which attracts a range of FDIs in the light-to-medium industrial space. The stock offers attractive FY13-14E dividend yields of 8.1%-9.0% based on its dividend policy of 40% payout of PAT. We peg Matrix’s Fair Value at RM2.75 based on a conservative 40% discount to our DCF-driven FD RNAV of RM4.56.

Vast land bank in Negeri Sembilan and Johor. Matrix Concepts has two major township landbanks with remaining 2355ac, which amounts to a GDV of RM6.5b; Bandar Sri Sendayan (BSS) in Seremban, Negeri Sembilan and Taman Seri Impian in Kluang, Johor. Its major driver is BSS, which makes up 82% of the landbank. Seremban is part of the Greater Klang Valley-Kuala Lumpur Conurbation and is strategically located and accessible via main highways, including the North-South Expressway and the proposed West Coast highway. The township enjoys all the features of a bread-and-butter earnings driver given the strong population and economic drivers, including proximity to KLIA/LCCT, other townships and industrial parks (e.g. Seremban 2, Bandar Enstek, Tuanku Jaafar Industrial Park, Nilai Industrial Estate).

Resilient demand from affordable housing demand and industrial activities. Seremban enjoys the spill-over effects from the rising prices of homes in Klang Valley, as it is easily 50%-80% cheaper than areas like Kota Kemuning. Additionally, their industrial park, Sendayan Tech Valley, which spans 685ac (remaining: 338ac) in BSS, has attracted international names like Hino Motor and Daihatsu Motor as there is migration of industrial activities towards cheaper locations. This also means expanding development margins since Matrix’s land cost is low. BSS will also be home to the new academic and training centre of the Royal Malaysia Air Force (RMAF; previously located in Sungai Besi, KL) as 1MDB has acquired land from the company; this forms another new source of future housing demand. Notably, the main buyers of the company’s units consist of Bumiputera buyers, hence they have no issues in meeting Bumiputera requirements, which is a cash-flow plus for the company.

Strong balance sheet positions it for land banking activities. The company is in a net cash position. Based on FY13E balance sheet and 0.4x net gearing limit, we estimate that the group can raise another c. RM220m for new landbanking which implies RM1.5b worth of new GDV assuming that land cost makes up 15% of GDV. If so, this would increase the group’s total remaining GDV by 23% to c. RM8b. In the meantime, the group’s strong net cash position allows them to pay out favourable dividends until sizeable landbanking activities take place.

Estimating FY13-14E net profit growth of +30% YoY and +10% YoY, underpinned by FY13-14E new launches of RM0.9b-RM1.0b and average take-up rates of 70% each. Current unbilled sales stand at RM445m providing close to 1 year visibility. At IPO price, it will trade at FY13-14E PER of 4.9x-4.5x vs. mid-cap developers average of 7.2x-5.9x, while implied dividend yield of 8.1%-9.0% is richer than its peer average of 4.8%.

Background & Business

Company background. Matrix Concepts is a Negeri Sembilan-based property developer which started out back in 1996 as Brilliant Radical Sdn Bhd and subsequently Matrix Concepts Holdings Sdn Bhd in 2003 before becoming a public-listed company in 2004. The company is principally focused on development of affordable and quality mass market properties catering to the mid-end market. Helming the company are the group’s Managing Director, Dato’ Lee Tian Hock, and Deputy Managing Director, Mr. Ho Kong Soon, both whom have more than 25 and 20 years of experience in the property development business, respectively. In 1997, its maiden project was Taman Bahau in Negeri Sembilan with 595 residential and commercial units worth RM35m delivered by 1999. As at 2012, the company completed projects worth RM1.9b GDV (RM2.1b GDV as at March 2013) and sold 19,389 out of a total 19,412 residential and commercial properties. As at 2012, total on-going projects include 2,659 units of residential, commercial and industrial properties amounting to an estimated GDV of RM1b, of which 72.4% have been sold.

The group is currently undertaking the development of two township projects. Bandar Sri Sendayan in Seremban, Negeri Sembilan which the group signed a joint venture agreement in 2005 through BSS Development with MBI to develop 5233 ac into a township project. The second development, Taman Seri Impian located in Kluang, Johor was also a joint venture agreement with KKTNJB signed in 2005 through Matrix to develop a 900 acre township project.

INVESTMENT CASE

Vast land bank in Negeri Sembilan and Johor. Matrix Concepts has two major township landbanks; Bandar Sri Sendayan (5,233 ac) located in Seremban, Negeri Sembilan and Taman Seri Impian located in Kluang, Johor (900 ac). Currently, it has a remaining landbank of 2355ac. However, its main driver is its projects in Negeri Sembilan, which accounted for 75.0% of FY12 revenue while only 17.8% were from its Johor projects, and the remaining 7.2% was from the Johor land sale. Currently, the group has a remaining total GDV of RM6.5b (16% are from on-going phases) left to be developed, which provides visibility up to 2019.

Seremban is part of the Greater Klang Valley-Kuala Lumpur Conurbation. Seremban is part of the Greater Klang Valley-Kuala Lumpur Conurbation. BSS is also strategically located due to its accessibility via main highways, namely the Seremban-Port Dickson Expressway, the North-South Expressway, the proposed Senawang-KLIA Expressway and the proposed West Coast Expressway. It is 30 minutes away from KLIA and LCCT. Another point worth noting is that the main buyers of the company’s units consist of Bumiputera buyers, hence they have no issues meeting Bumiputera requirements.

Bandar Sri Sendayan is the major earnings driver. In 2008, the company began its 5,233 ac (remaining: 1942ac) integrated township in Seremban, Negeri Sembilan, known as Bandar Sri Sendayan (BSS) of total GDV of RM6.83b (remaining RM5.4b). The township enjoys all the features of a bread-and-butter earnings driver given strong population and economic drivers. It is near KLIA/LCCT (30-minute drive), as well as, other townships and industrial areas like Seremban 2, S2 Heights, Bandar Enstek, Oakland Commercial Centre and Industrial Park, Tuanku Jaafar Industrial Park, Senawang Industrial Park and Nilai Industrial Estate. BSS will also be home to the new academic and training centre of the Royal Malaysia Air Force (RMAF; previously located in Sungai Besi, KL) as 1MDB has acquired land from the company.

Beneficiary of the demand for ‘affordable housing’. Klang Valley residential prices have been moving up strongly over the last 5 years. We also noticed that in the last 3 years, developers are landbanking further and further away from Kuala Lumpur’s city center as sizeable township landbanks are tougher to come by, while demand for affordable housing requires cheaper land costs; key areas are the likes of Bangi, Semenyih, Rawang, Cyberjaya, Putrajaya and of late, Kota Kemuning (e.g. IJMLAND (OP; TP: RM2.93) Rimbayu and Dijaya (OP; TP: RM2.15) ‘Canal City’. The Kota Kemuning area is about 90km North-West of BSS. We understand that IJMLAND has launched its Rimbayu link homes (2322sf) with a starting price of RM580,000/unit or RM250psf vs. BSS link homes (2400sf) which are being sold at between RM300,000-360,000/unit or RM125-150psf. This will also appeal to the civil servants of RMAF – this will be a new source of demand and although it may take 3-5 years before this impact is felt, we remain confident of the medium to longer-term demand prospects of the area as we akin this to Manjung, Perak where the naval base that provided resilient demand for developers like YNH Properties (NOT RATED).

Source: Kenanga