News  Proposed acquisitions of 15 parcels of agriculture land totaling up to 79 acres in Seremban for a total consideration of RM27.5m or RM8.0psf.

Comments  We are positive but were not entirely surprised with the news, as we have highlighted in our previous report dated 16/2/15 that MATRIX is always on the look for landbank replenishments. This is reflected in our FD RNAV where we assumed at least RM1.8b worth of GDV replenishments. Management guided that these 79 acres of agriculture land are adjacent to Sendayan Tech Valley 2 (STV2) and carry a total potential GDV of RM110m.

 The acquired land will be converted into industrial use in the future given its strategic location being right next to STV2. This landbank replenishment will further boost its remaining industrial landbank of 310 acres to 389 acres, and we are expecting more landbanking activities in FY15.

 While the conversion cost is yet to be known at this juncture, we deem that the acquisition cost of RM8.0psf for the 79 acres of agriculture land as fair; assuming a conversion cost of 25.0% to its cost of RM8.0psf, the converted land cost would work out to be RM10.0psf, which is similar to its previous acquisition cost for Sendayan Tech Park back in Sep-14. Subsequently, its net gearing would inch up to 0.01x from a net cash position as of FY14.

 The project’s GDV of RM110.0m translates to RM42.6psf based on net sellable area of 75.0% (net of infrastructure development), which is comparable to the current asking price of RM45psf in STV1. Assuming a conservative infrastructure cost of RM4.0-RM5.0psf (historically) on top of RM10.0psf, the sale of these land would generate a gross margin ranging between 53.0% and 56.0%. However, it is weaker than STV1’s gross margin of 77.0%-79.0% as STV1 total land cost is only RM9.0-RM10.0psf (inclusive of infrastructure works).

Outlook  We expect the group to do more landbanking this year. Management is planning RM1.1b worth of launches, i.e. Bandar Sri Sendayan (GDV: RM670m), Taman Seri Impian (GDV: RM206m) and Residency SIGC (GDV: RM229m) over FY15. Approximately 58.0% of its planned RM1.1b launches are made up of residential products priced below RM500k.

Forecast  No changes to our FY15-16E earnings, as we believe that the development of these lands would not take place in the nearterm as it requires time for conversion and basic infrastructure works.

Rating Maintain OUTPERFORM

Valuation  We reiterate OUTPERFORM with an unchanged Target Price of RM3.05 based on 30.0% discount to its FD RNAV of RM4.35. Post acquisitions, our GDV replenishment assumptions have been reduced by 6.0% to RM1.7b. The applied RNAV discount is below its historical average levels of 34%. Its valuation remains attractive, trading at 7x FY15E PER below its small-mid cap peer average of 8x, coupled with a superior dividend yield of 6.5% which is higher than its peer average of 5.0%. Furthermore, we also like its light balance sheet and affordable housing /industrial property positioning.

Risks to Our Call  Weaker-than-expected property/land sales.

 Negative real estate policies.

 Tighter lending environments.

Source: Kenanga