News  Last Friday, Matrix Concepts (MATRIX) announced that it will be acquiring a parcel of industrial land measuring 164.0 acres in Seremban adjacent to Bandar Sri Sendayan for a total consideration of RM71.5m.

Comments  We were not entirely surprised with this acquisition as we have highlighted in our previous report that MATRIX is actively looking for landbank replenishments in which we have already factored in RM2.0b worth of GDV replenishments. The following landbank replenishment will further beef up its existing industrial landbank of 1,000 acres by another 164 acres bringing it up to 1,164 acres of industrial landbank in Seremban.

 The land has a potential project GDV of RM170.0m. We believe that the new land acquired would be sold on a developable land basis based on RM31.7 psf on a net land basis equivalent to 75% of gross land where we believe there would be ready buyers given that MATRIX’s industrial land are highly sought after due to the infrastructure in Sendayan Tech Valley and its close proximity to Greater Klang Valley and KLIA.

 We deem the acquisition price of RM10 psf (gross land basis) as fair. Assuming additional RM1-2 psf for basic infrastructure and earthwork costs, we reckon sale of developable industrial land would translates to gross margin of 36%-39% based on an estimated selling price of RM31.7

psf (net land basis equivalent to 75% of gross land), which is lower as compared to its previous land sale margin of 60%-70% as its costs are higher as compared to its existing industrial landbank that costs about RM3psf or RM9psf (inclusive of infra cost).

Outlook  We believe that MATRIX will be able to sustain similar 2Q14 performance in subsequent quarters given that billings for some of its projects have already picked up pace. Its unbilled sales of RM434.7m would also provide at least oneyear visibility for the group. Hence, we are maintaining our FY14E and FY15E earnings of RM167.2m and RM190.2m, respectively, underpinned by strong billings and sales takeup rates.

Forecast  No changes to estimates as we have already imputed a potential land sale of RM150.0m for FY14, in which MATRIX could deliver with this latest land acquisition.

Rating Maintain OUTPERFORM

Valuation  We are reiterating our OUTPERFORM recommendation on MATRIX with an unchanged Target Price of RM3.48 based on our FD RNAV of RM4.35 with an unchanged discount of 20%. There are no changes to our Target Price as we have previously factored in RM2.0b worth of GDV replenishments as we expect the group to execute sizeable landbanking in Seremban over the next 12 months. Currently, we assume RM1.8b GDV replenishments after taking into account this new landbank.

 We believe that MATRIX is well positioned in the affordable housing segment coupled with industrial developments within the Greater Klang Valley region.

Risks to Our Call Unable to meet sales targets or replenish landbank. Sector risks, including additional negative policies.

Source: Kenanga