We attended MATRIX’s post-result briefing and came away positively affirmed on its prospects due to the following factors: (i) demand for affordable housing in Seremban has stayed resilient despite recent cooling measures for the property sector, (ii) strong demand for industrial properties which will benefit their Sendayan Tech Valley (STV) development, and (iii) it is continuously creating value for their township which could translate into better margins for the group in the future. The group is also on the lookout for industrial land as their STV landbank will only last 2-3 years. Since the company is comfortably in a net cash position, it has sufficient gearing headroom to landbank another fresh GDV of RM1.0b. We make no major changes to our earnings forecasts. At current levels, FY14E and FY15E dividend yields are attractive at 6.6% and 7.5%, respectively. Maintain OP with an unchanged TP of RM4.80.

Still focused on the affordable mass housing play. MATRIX has planned new residential and commercial project launches in FY14 with GDV close to RM700m. This excludes some RM416m worth of ‘ready for sale’ or completed projects, of which a major bulk is the STV industrial lots. Management continues to target buyers from the Klang Valley where affordability has become a big issue for the masses. Thus, they plan on increasing the Klang Valley-based buyers portion from 40% in FY13 to 50% in FY14 through more marketing and advertising campaigns in Klang Valley by creating awareness on the convenience of commuting between Seremban and Klang Valley by highlighting the tolerable travelling distance (approx. 50 mins). The company is also maintaining their affordable selling price tags of RM400k-500k/unit which are achievable “aspirations”. Key projects in Bandar Sri Sendayan (BSS) include: (i) RM500k/unit for a 22x80 landed property with an average built up of 2700sf (Hijayu 1A), (ii) RM400k for a 20x80 landed property with an average built up of 2300sf (Hijayu 3A). Management did say that the impact of the government’s property cooling measures on the sector could be felt as buyers are taking a ‘wait and see’ approach. However, this should not be a major concern for MATRIX given that they are catering to genuine buyer-occupiers with their affordable housing offerings.

Value creation and enhancement. We understand that the company is focusing on creating more value for its landbank by attracting more foreign-based high-impact industries into STV, increasing commercial activities via new retail contents and township amenities (refer below). Currently, Akashi Kikai and Hino Motor have started operations. To recap, during the initial phase of STV, land was priced at RM12psf before investments flowed in from high-impact industries. However, since the likes of Hino Motor, Messier Buggatti-Dowty, Akashi-Kikai started operations in STV, land prices have soared to RM40psf. Currently, the group has a balance of 243.7acres of landbank in STV, of which c. 200ac will be sold on an industrial lot basis over the next 2-3 years. The balance will be held back for later developments into semi-industrial lots, which will fetch higher returns and will be a good catchment of supporting industries catering to those in STV.

Matrix Global School and d’Tempat Country Club are part of the value-add activities to BSS. The group had set out a total capex requirement of RM190m for both these properties with RM130m for Matrix Global School and RM60m for d’Tempat Country Club. Having incurred RM66m capex on both of these properties in FY13, we would be expecting the balance RM124m to be incurred over the next 1.5 years. Its Matrix Global School is expected to be completed by year-end and commence operations by Jan-15.

More landbanking? The group has sufficient land for township development in Seremban from its acquisition of Labu and Rasah lands. However, the group is on the lookout for more industrial landbanks in the area. Based on their comfortable net cash position of 0.1x at 4Q13 and taking into account their CAPEX commitment, we believe the group can afford to spend c. RM100m on new landbanks while maintaining a net gearing ratio of less than 0.3x. Assuming land cost is 10% of GDV, this will add RM1b GDV to their remaining GDV of RM7.9b.

Maintain FY14E net profit based on sales assumptions of RM806m. For FY13, the group paid out 59% of net profit for dividends, which amounted to 30.4 sen per share; but it did include profits from the previous year as the company was only listed on 28th May 2013. The company has a minimum dividend policy of 40%. Going forward, we expect the group to pay out 45% of net profit or 25 sen dividend per share (6.6% yield) which we expect will be distributed on a quarterly basis.

Reiterate OUTPERFORM with unchanged TP of RM4.80 based on 20% discount to its DCF-driven RNAV @ 10% WACC. We continue to like MATRIX for its strong affordable housing market exposure, which will continue to enjoy resilient demand, low land cost which provides them a margin edge, industrial property exposure, which is enjoying a boom in Seremban given its proximity to Klang Valley. Furthermore, at current level, FY14-15E dividend yields are attractive at 6.6%-7.5%.

Source: Kenanga