News

Proposed acquisition of 5.76 acres of leasehold land in Puchong from IRDK Ventures Sdn. Bhd. for a total consideration of RM95.0m or RM378.6psf.

Comments

The proposed land acquisition marks MATRIX’s second development foray in the Klang Valley. Estimated GDV is RM500m based on its existing density ratio of 80 units/acre and on-going high rise residential project namely IRDK Residence on that parcel of land. Should they are able to upgrade it to 90 units/acre, we are estimating that its GDV would potentially be increased by another 13% to RM563.0m.

While the parcel of land is located near Setia Walk, the proposed acquisition price of RM95.0m or RM378.6psf would be 122% higher than MAHSING’s land acquisition price of RM170.0psf (before conversion from industrial to commercial) back in Aug-14, which is located right behind IOI Mall. However, we deem that the acquisition price is acceptable as the land cost still implies a 19% portion to its existing GDV of RM500.0m compared to our threshold of 20%. Land-to-GDV ratio may be lowered to 17% should they are able to upgrade the land density ratio to 90 units/acres as mentioned above.

The acquisition cost of RM95.0m for the land excludes the existing infrastructure/earthwork costs that had been incurred by the existing vendor and MATRIX will reimburse the vendor accordingly. Its net gearing is expected to inch up to 0.15x from net cash position in FY14 post acquisition of the 79 acres of agriculture land and this parcel of land in Puchong.

We were surprised by this acquisition as we expected the group to landbank in Seremban or stick to more affordable options in the Klang Valley. Based on our channel checks, it appears that the development has been marketed as a higher-end project as average selling price per unit is >RM900k/unit given a minimum built-up of 1,500sf; this segment is extremely tough to sell given the current challenging property landscape. For now, we reckon that the project is not viable in the near-term and thus, we are less than enthusiastic about the project. Nonetheless, we are still waiting for the company to provide us with project details and launch timing.

Outlook

In terms of launches, management is still committed to launch RM1.1b worth of projects in FY15 consisting of residential and commercial products, i.e. Bandar Sri Sendayan, (GDV: RM670m), Taman Seri Impian (GDV: RM206m), Residency SIGC (GDV: RM229m). Out of the RM1.1b launches, approximately 58% are residential products priced close to RM500.0k per unit excluding industrial land sales.

Forecast

No changes to estimates as we believe earnings contributions will be at least a few years down the road.

Rating

Maintain MARKET PERFORM

Valuation

The project does not increase our FD RNAV as we had already built-in RM1.7b GDV replenishments and post this acquisition, our GDV replenishment assumption is reduced to RM1.2b.

We reiterate our MARKET PERFORM call on MATRIX with an unchanged Target Price of RM3.05 (ex-bonus, RM2.62).

Valuation

s appear to be quite fair considering current conditions because at its current share price, FY15-16E PER are 7.4x-7.4x vs. mid-cap peers 6.0x-5.5x while net dividend yield of 6.1% is just at a slight premium to its peer’s average of 5.5%. Note that our applied FD RNAV discount of 30% for MATRIX is also one of the thinnest within our coverage (range: 30%-72%, average: 53%).

Risks to Our Call

Weaker-than-expected property sales.

Higher-than-expected sales and administrative costs.

Negative real estate policies.

Tighter lending environments.

Source: Kenanga Research - 22 Apr 2015