Period  3Q14/9M14

Actual vs. Expectations Matrix Concepts (MATRIX)’s 9M14 core earnings of RM126.1m was well within our, and streets’, expectations, making up 76% and 78% of ours and streets’ full-year estimates of RM167.2m and RM162.5m, respectively.

 However, its 9M14 sales came in below our expectations as MATRIX only manages to rake in total sales of RM449.5m that only makes up 56% of our full-year property sales estimates of RM806.0m; note this is inclusive of Sendayan Tech Valley (STV) land sales. The shortfall was mainly due to the lack of land sales from STV for the year owing to timing issues as prospective buyers could have taken a longer approval process on their end to invest in STV.

Dividends  Second interim dividend of 3.75 sen was declared, which brings 9M14 dividends to 11.0 sen adjusted for bonus issue (3.8% yield). This is considered within expectations as 9M14 makes up 66% of our full-year estimates as we are expecting a higher dividend payout in 4Q14.

Key Results Highlights YoY, 9M14 core earnings of RM126.1m saw an increase of 12% from RM112.2m, supported by a marginal 4% improvement on its revenue of RM447.3m coupled with 6ppt expansion on its EBITDA margins from 45% to 51% as they were finally able to recognise the billings from its projects like Hijayu 1A (Phase 1 & 2), which further contributed to better margins.

 QoQ, MATRIX’s 3Q14 pre-tax profit remains flattish at RM58.5m despite lower revenue of RM148.8m (-9%) underpinned by lower operating costs, which decreased by 14% to RM90.0m. However, its 3Q14 earnings continued to improve by 6% to RM45.1m mainly attributable to lower effective tax rate of 23% (-5ppt) due to a reversal of non-deductible expenses for tax purposes due to an over provision in the preceding quarter.

Outlook  Pending today’s briefing, we are looking to reduce FY14-15E sales estimates (currently: RM806m-RM824m) and in particular industrial land sales.

 As for landbanking activities, they are on the lookout for more land in Seremban and Kluang and we do expect more land deals to take place early next year given their light balance sheet. To recap, MATRIX has just replenished 164 acres of industrial land bank that is adjacent to STV back in 19-Sep-14 for RM71.0m.

 As of 9M14, its unbilled sales stand at RM410.5m providing at least one-year visibility.

Change to Forecasts No changes to our FY14-15E earnings, pending today’s briefing.

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%, despite the softer outlook on the property market as we believe that MATRIX is well positioned in the affordable housing segment and industrial developments within the Greater Klang Valley region.

 Furthermore, its valuation is still cheap, trading at only 7.8x and 6.8x FY14-15E PERs coupled with decent dividend yields of 5.8%-6.6% vs. its peers average of 4.5% - 5.5%, respectively.

Risks to Our Call Unable to meet sales targets or replenish landbank.

Sector risks, including additional negative policies.

Source: Kenanga