Post-briefing, we remain neutral on MATRIX’s near-term prospect. While management has scaled down its launches by 39% to RM666m for FY15 due to market conditions, they remain confident with their new sales target of RM700m of which RM650m is from residential & commercial projects while the remaining RM50m from industrial land sales. That aside, we also expect they will benefit from the new housing policy in Negeri Sembilan, as we believe it would be GDV accretive by at least 11%. Hence, we are reiterating our MARKET PERFORM call on MATRIX with an unchanged Target Price of RM2.46 with a discount of 30% to its FD RNAV of RM3.51.

Delay of launches, but a higher sales target ahead. As of 1H15, MATRIX has only launched RM437m worth of residential projects. They are planning to launch another RM229m worth of residential projects namely Residency SIGC bringing its total planned launches for FY15 to only RM666m, which was scaled down from its initial launches target of RM1.1b. Management delayed some of its residential project launches pending a better market condition. However, management guided a higher FY15 sales target of RM700m (previously, RM600m from residential and commercial only) this time around of which RM650m is from residential and commercial while the remaining RM50m from industrial land sales. Judging from its 1H15 sales of RM367m, it appears that management’s target is achievable. However, in view of the current volatile environment, we opt to keep our conservative FY15E sales of RM625m for now, and thus, no changes to our earnings estimates.

Medium cost housing policy to be GDV accretive. In the briefing, management highlighted that they are not too concerned about the increased Bumiputra quota in Negeri Sembilan as the proportion of Bumiputra home buyers in the state tends to be between 40%-90%, depending on project type. More of an issue for most developers is the new housing policy where 50% of the development should comprise of affordable property, of which: (i) 15% of houses priced at < RM80k, (ii) 15% of houses priced at <RM250k, and (iii) 20% of houses priced at <RM350k as compared to 30% low cost requirement (<RM80k) previously. Based on this new policy, MATRIX is a net gainer as it can move from low-medium cost developments to more medium-cost developments, and we view this positively as it could command better margins from medium-cost housing over low-cost housing and it would be GDV accretive by at least 11% based on our back-of-envelope calculations. As part of the plan to cater for more medium-cost housing, the group reiterated its target to roll out c.3,000 units of affordable landed housings with a GDV of close to RM1.0b (Kota Gadong Perdana) next to BSS over the next few years to cater for the affordable market segment.

Potential hospital in Bandar Sri Sendayan? Post-briefing, management announced that they have incorporated a company named Matrix Healthcare Sdn. Bhd., and we reckon that management may be planning a healthcare facility in Bandar Sri Sendayan. While there are not many details on the potential CAPEX and timeline for this development, we are positive as this would further enhance the value of Bandar Sri Sendayan in the longer term.

MARKET PERFORM maintained. We are reiterating our MARKET PERFORM call on MATRIX with an unchanged Target Price of RM2.46 with a discount of 30% to its FD RNAV of RM3.51. Our TP of RM2.46 implies FY16E PER of 7.6x that is close to its peer average of 7.1x. The 30% discount would be 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 (<RM500k). Furthermore, downside risks is capped given that at our TP of RM2.46 it still commands better yield of 5.9% vs. its peer average of only 5.0% 

Source: Kenanga Research - 12 Aug 2015