Period

2Q15/1H15

Actual vs. Expectations

Matrix Concepts (MATRIX)’s 1H15 net profit of RM145.3m makes up 76% and 74% of our and consensus full-year estimates, respectively. However, we deem this as broadly in-line as we are expecting slower quarters ahead given that MATRIX has enjoyed the acceleration on the recognition of its on-going residential and industrial projects prior to the implementation of GST.

In term of sales, MATRIX recorded total sales of RM367m in 1H15, making up 53% our full-year sales target of RM697m.

Dividends

Second interim dividend of 3.5 sen was declared, as expected.

Key Results Highlights

YoY, 1H15 net profit surged by 79% underpinned by strong revenue growth of 47% coupled with improvements in EBITDA margins (+9ppt) to 58%. The strong revenue growth and improvements in margins are due to accelerated recognition of its on-going residential and industrial properties (generally gets superior margins vs. residential and commercial properties) prior the implementation of GST.

QoQ, its 2Q15 net profit decreased by 74% to RM29.9m, driven by a sharp decrease in revenue (-62%) as MATRIX had a lumpy progress billing in 1Q15 whereby they accelerated their billing for on-going projects prior GST.

Outlook

As of 2Q15, its unbilled sales stand at RM540.0m providing at least 1 – 1.5 year visibility.

For FY15, management has planned RM1.1b worth of project launches in FY15 which consists of residential and commercial products, i.e. Bandar Sri Sendayan, (GDV: RM670.0m), Taman Seri Impian (GDV: RM206.0m), Residency SIGC (GDV: RM229.0m) of which 58.0% are residential products priced close to RM500.0k per unit excluding industrial land sales.

Change to Forecasts

Moving forward, we reduced our FY15E sales by 10% to RM625.0m, while we bumped up our FY16E sales by 5% to RM728.0m as we pushed forward some of FY15E land sales into FY16E.

Further to our revision in sales estimates as above, we are still maintaining our FY15E net profit, even after we as it is backed by strong unbilled sales of RM540.0m, while we increased our FY16E net profit by 4% to RM198m following the upward adjustment in our FY16E sales.

Rating

MARKET PERFORM

Valuation

We maintain our MARKET PERFORM call with a lower TP of RM2.46 as we have factored in the dilution impact from its free warrants, lowered our GDV replenishment assumptions of RM1.2b to RM600.0m coupled with a wider discount of 30% to its FD RNAV of RM3.51 (previously, RM2.80 based on 25.0% discount to its FD RNAV of RM3.74). We lowered our GDV replenishment assumptions by half as landbanking has been challenging thus far. Our RNAV discount has widened given valuations de-rating in mid-cap property players. Our new TP implies FY16E PER of 7.6x which is still in line with its peers’ average of 7.1x. The 30% discount is the narrowest compared to the RNAV discount applied to the mid-cap peers’ that averages at 62%, due to its affordable landed residential offerings in Seremban (<RM500.0k). However, downside risk is cushioned given that at our TP of RM2.46, it still commands better yield of 5.9% vs. its peers’ average of only 5.0%.

Risks

(i) Weaker-than-expected property sales, (ii) Higher-thanexpected sales and administrative costs, (iii) Negative real estate policies, (iv) Tighter lending environments

Source: Kenanga Research - 11 Aug 2015