Actual vs. Expectations Matrix Concepts (MATRIX)’s 1Q14 core earnings of RM38.6m came in within consensus and our expectations, at 23% of both the FY14 estimates.

 1Q14 registered property sales of RM125m making up 16% of our sales projection of RM800m for the year as the group only launched RM251.6m worth of residential and commercial properties in 1Q14. While it appears proportionately lower than our estimates, we are not surprised as we are expecting a stronger 2H14 given timing of new launches.

Dividends  First interim single tier dividend of 5 sen was declared, which is within our expectations, and for the full-year, we are expecting a total net dividend of 25 sen which still translates to a yield of 6.2%.

Key Results Highlights QoQ, MATRIX’s 1Q14 core earnings was down marginally by 5% to RM38.6m following a decrease in revenue (-7%) mainly due to its on-going projects which have yet to reach a significant billing stage (e.g. Hijayu 1A - Phase 1). However, we do note that there is a huge reduction in its selling & marketing and administration cost by 39% to RM14.1m translating to a marginal increase of 1ppt in its pre-tax margin of 40%.

 YoY, its 1Q14 was down by 13% to RM134.7m mainly due to higher industrial property sales recorded in 1Q13. However, despite a lower revenue (-13%) and corresponding decrease in earnings (-16%) MATRIX managed to record improvements in its EBITDA margin by 3ppt to 51% as it is now able to command better pricing for its properties.

Outlook  MATRIX is still on track to launch RM660m total worth of affordable residential properties for the year excluding the balance GDV of RM377m from STV industrial park, which are segments seeing resilient demand.

 As for landbanking activities, it is on the lookout for more land in Seremban and we do expect some land deals to take place this year given their light balance sheet.

Change to Forecasts Maintain earnings estimates for now, pending their upcoming briefing on 22 May 2014. Unbilled sales of RM440.8m providing at least one-year visibility.

Rating Maintain OUTPERFORM

Valuation  No changes to our TP of RM4.80 (ex-bonus RM3.20) based on 20% discount to its fully diluted RNAV of RM6.00 (ex-bonus RM4.00). We continue to like the stock for its strong FY14E dividend yield of 6.2% and high exposure to the mass-market segment.

Risks to Our Call Unable to meet sales targets or delays in property launches. Sharp escalation of raw material prices.

Source: Kenanga