Post analysts’ briefing, we are reassured with MATRIX’s long-term prospects given its positioning in the affordable housing segment out of Greater Klang Valley. While we have lowered our FY14 sales estimate by 18%, factoring in the delay of its industrial land sales and timing of launches, we are maintaining our earnings estimate of RM167.2m and RM190.2m for FY14E and FY15E as we have factored in higher margins for its residential projects. We continue to maintain our OUTPERFORM recommendation on MATRIX with a Target Price of RM3.48 based on 20% discount to its RNAV of RM4.35 given its position in the affordable housing segment and industrial developments within the Greater Klang Valley region coupled with its cheap valuations, 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.

Lowering FY14 sales estimates to RM660m. In the briefing, management highlighted that they will be only be launching another RM98m worth of residential project in 4Q14 namely Hijayu 3A Phase 4, while its Residency SIGC (GDV: RM229m) had been rescheduled to 2H15 bringing its FY15 planned launches up to RM1.0b (excluding industrial land and KL project). As for industrial land sales, management highlighted that it could come in slower than expected as they are still working to close the deals with foreign investors from Denmark and Korea as these investors in high impact industries tend to take longer to deliberate on investment in new regions. Hence, following the revision on its planned launches in FY14 and slowerthan-expected industrial land sales, we are adjusting our FY14 sales estimates lower by 18% to RM660m. Nonetheless, MATRIX has a remaining GDV of RM356.2m for its industrial land plot that would last the group for the next 3 years.

Pricing advantage in Seremban. While we have lowered our sales estimate due to the timing of launches and its industrial land sales, we believe that average take up rate of 70% given that its properties are priced below RM500k or at an average pricing of RM180 psf as compared to its neighbouring development, i.e. Bandar Ainsdale and Seremban 2 which are selling at the range of RM200 – RM240 psf; coupled with its International School and club facilities, we believe it would attract a lot of home owners from Klang Valley given its close proximity, which only requires 45 minutes of travelling time.

Earnings estimates maintained. While we lowered FY14E land sales significantly, impact to earnings is negligible as we bumped up residential margins, which results in 1ppt increase in gross margin given that MATRIX had been enjoying better margins from its recently launched projects in Bandar Sri Sendayan and Taman Seri Impian whereby property prices have seen much appreciation, especially in Taman Seri Impian, while the recognition timing of industrial land sales was assumed to take place only in 4Q14. As for FY15E, our earnings estimate was not affected as we merely delay the land sale deals. Hence, we are maintaining our FY14-15E earnings forecasts of RM167.2m and RM190.2m, respectively.

Bumi quota from 30% to 50%? It was reported in the news that Negeri Sembilan Menteri Besar might look to increase the Bumiputera house ownership quota in the state from the current 30% to 50%. As we understand from management, they are working closely with the state government to come up with a solution in addressing the low-cost housing issues within the state. Moreover, we are not too concerned with Bumiputera participants issue in MATRIX’s development given that 40% - 50% population mix in Bandar Sri Sendayan are Bumiputera.

Outperform maintained. We are reiterating our OUTPERFORM recommendation on MATRIX with a Target Price of RM3.48 based on RNAV of RM4.35 with an unchanged discount of 20%. We believe that MATRIX is well positioned in the affordable housing segment and industrial developments within the Greater Klang Valley region coupled with its cheap valuation, 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.

Source: Kenanga