Post-briefing, we feel more comfortable of its Puchong project and reassured with its near-term prospects. Management remains committed to their planned launches of RM1.1b and sales target of RM600.0m for FY15 amidst challenging operating environments due to implementation of GST and tight lending measures. Hence, we are reiterating our MARKET PERFORM call on MATRIX with a higher Target Price of RM3.27 with a narrower discount of 25.0% to its FD RNAV of RM4.36 of which we have factored in RM1.2b worth of GDV replenishments (previously, RM3.05 based on 30.0% discount to its FD RNAV of 4.36).

Launches of RM1.1b and sales target of RM600.0m still intact. In 1Q15, MATRIX has only launched its commercial properties namely Sendayan Merchant Square 1 (GDV: RM135m) that makes up 13.0% of its planned launches of RM1.1b, as bulk of its residential properties are targeted to be launched from 2Q15 onwards. These projects are Hijayu Resort Homes (GDV: RM70.0m), Hijayu 3B (GDV: RM196.0m), Hijayu 3C (GDV: RM234.0m), Residency SIGC (GDV: RM229.0m), while the remaining are from Taman Seri Impian (GDV: RM206.0m). While management indicated that property sales in April have been relatively slow post implementation of GST, they remained confident in achieving their sales target of RM600.0m for FY15 backed by its strong pipeline of residential product launches that is priced at the range of RM550.0k. Hence, we are maintaining our FY15-16E sales of RM697.0-RM694.0m and earnings estimates as well.

Puchong, the gateway to Selangor. Post-briefing, we feel more comfortable with its Puchong land acquisition of an existing development project amounting to RM95m. Management deemed that the acquisition of the existing development project in Puchong as strategic given its location that is just walking distance from the upcoming LRT station. Most importantly, the Puchong project would provide MATRIX a quick development and profiling opportunity in the Selangor state given that most of the development approvals have been obtained as compared to acquiring a raw land for development as the approval process in Selangor could take years for a “new kid on the block”.

Free warrants! To recap, MATRIX has proposed a 1-for-6 bonus issue and 1- for-6 bonus issue of free warrants back in April-15. While the pricing for the warrants has yet to be determined, we view that these free warrants would help MATRIX to further strengthen their balance sheet for future landbanking purposes. Hence, we came up with three possible scenarios, i.e. Scenario 1A, Scenario 1B and Scenario 2 on the potential impact from conversions of warrants. Ideally, we favour Scenario 2 whereby the warrants are priced at a premium as it could potentially raise more cash for the company in the longer term and less dilutive compared to Scenario 1A and 1B; we prefer that dilutions be less than 5% considering our current FY15-16E core EPS flattish growth rate of 4.0%-0.0% (Refer overleaf for details). Post their Puchong land acquisition, their balance sheet will still be relatively light and the group can afford to gear-up or consider other cash retention opportunities (e.g. Dividend Reinvestment Plans), particularly as the group pays out 40.0% of earnings every quarter. However, if the group is still aiming to do more sizeable landbankings this year, we reckon Scenario 1A is more applicable.

MARKET PERFORM maintained. We are reiterating our MARKET PERFORM call on MATRIX with a higher Target Price of RM3.27 with a narrower discount of 25.0% to its FD RNAV of RM4.36 (previously, RM3.05 based on 30.0% discount to its FD RNAV of 4.36); note that our FD RNAV has factored in RM1.2b worth of GDV replenishments but have not built-in the free warrants as pricing has not been determined yet. Our TP of RM3.27 implies FY16E PER of 7.8x, is inline with its peer average of 7.7x. The 25.0% discount would be the narrowest compared to its peers’ RNAV discount of 38.0% while the segment’s average is 55.0%, and we are unlikely to narrow our discount factor any further under current market conditions. 

Source: Kenanga Research - 14 May 2015