Period  2Q14/1H14

Actual vs. Expectations Matrix Concepts (MATRIX)’s 1H14 core earnings of RM81.0m came in within consensus and our expectations, at 48% of both estimates for FY14.

 In 1H14, MATRIX registered total sales of RM291m making up 36% of our full-year sales estimates of RM800m. The lower-than-expected sales number was mainly due to the lack of Sendayan Tech Valley (STV) land sale in 1H14 where only RM18.9m STV land sales were recorded in 1H14.

Dividends  Second interim dividend of 3.75 sen was declared, which is within our expectations, and for the full year, we would expect a total net dividend of 16.7 sen giving a net dividend yield of 5.2%.

Key Results Highlights YoY, MATRIX’s 1H14 core earnings improved marginally by 7% to RM81.0m despite a slight dip in revenue to RM298.4m (-1%) as the group recorded better EBITDA margin of 48% (+6ppt) asit was finally able to recognise billings from one of its project namely Hijayu 1A (Phase 1) which further contributed to better margins.

 QoQ, its 2Q14 earnings improved by 10% to RM42.4m underpinned by the increase in revenue (+22%) similar to the reasons mentioned above. However, its pre-tax margins slide to 36% (-4ppt) due to higher administration costs (+17%) incurred for the Matrix Global Schools and the clubhouse constructed for its Bandari Sri Sendayan township residents.

Outlook  For FY14, MATRIX aspires to launch approximately RM800m worth of projects despite all the property cooling measures put in place. To recap, MATRIX has already launched RM409m worth of projects in 1H14. However, we believe that MATRIX would continue to launch its remaining RM400m worth of projects post Budget 2015 which is closer to 4Q14.

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

 Its 2Q14 unbilled sales currently stands at RM434.7m providing at least one-year earnings visibility.

Change to Forecasts   No changes to our earnings estimates for now as we might look to finetune post its analysts’ briefing today.

Rating UNDER REVIEW

Valuation  We will review our CALL/TP pending the briefing today. Our previous recommendation was OUTPERFORM with a TP of RM3.20 based on 20% discount to its FD RNAV of RM4.00.

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

Source: Kenanga