Period  4Q14/FY14

Actual vs. Expectations  Matrix Concepts (MATRIX)’s reported its FY14 results yesterday, it FY14 core earnings of RM183m came in above ours and streets’ expectations, exceeding ours and streets’ full-year estimates of RM167m and RM166m by 9.5% and 10.2%, respectively. The sterling set of results were largely driven by better margin contributions from its industrial land sale, followed by reversal of provisions made for staff costs (c. RM3m), previously.

 In term of sales, MATRIX registered a total sales of RM630m for FY14, that came in within our expectations as it makes up 95% of our full-year forecast of RM660m.

Dividends  MATRIX declared a total dividend of 6.50sen, which comprises a fourth interim dividend of 5.25sen and a special dividend of 1.25sen. For the full-year, MATRIX declared a total dividend of 17.33sen (6.0% yield) that also came in above our full-year estimates of 16.70sen.

Key Results Highlights  YoY, its FY14 core earnings increased by +19% to RM182.6m underpinned by a marginal improvement on its revenue of RM598.3m (+4%) coupled with 7ppt expansion on its EBITDA margins from 48% to 55%. The improvements in margins are mainly driven by lower operating costs that came down by - 10%, coupled with better margin contributions from the billings of its land sales and also projects like Hijayu 1A (Phase 1 & 2).

 QoQ, 4Q14 core earnings surged by +25% driven by (i) lower operating costs (-17%) which could be due to the reversal of provision for staff cost (ii) lower marketing and administrative costs (-3%) because of the high-base effect in 3Q14 for marketing costs of its 2H14 i.e. Hijayu 3A, Phase 3 & 4.

Outlook  As of FY14, its unbilled sales stand at RM430m providing at least one-year visibility.  In the previous briefing, management highlighted that they will be planning RM1.0b worth of launches in FY15 (excluding industrial land sales and KL project). However, we would like to reaffirm our sales assumptions with management during their upcoming briefing on 13th-Feb-2015. As it is, we have a cautious property market outlook due to the tight lending environment coupled with the uncertainties caused by the upcoming implementation of GST, which may affect even the likes of affordable players like MATRIX. Thus, we hope to hear more of management’s strategies to circumvent such challenges.

Change to Forecasts  We are rolling out our FY16E earnings of RM191m, while keeping our FY15E earnings of RM190m. We are estimating earnings growth in FY16 to be flattish as we would expect the property market remains challenging in 1H15 due to the reasons mentioned above. Currently, we are estimating RM697m-RM694m worth of sales for FY15-16, respectively.

Rating Maintain OUTPERFORM

Valuation  We continue to like MATRIX for its affordable/mass market exposure which tends to target genuine buyers, coupled with industrial developments capitalizing on the Greater Klang Valley story. Furthermore, its valuation is still attractive as it is trading at 6.9x FY15E PER which is still below its small-mid cap peer average of 7.5x, coupled with decent dividend yield of 6.5%that is higher than its peer average of 5.0%

 Hence, we reiterate our OUTPERFORM recommendation on MATRIX with an unchanged Target Price of RM3.05 based on our FD RNAV of RM4.35 with an unchanged discount of 30%. The applied discount is below its historical average levels of 34% and is pretty much in-line with the discount range of 30%- 38% applied to its peers which are operating in “affordable” housing segment e.g. HUAYANG.

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

Source: Kenanga