We came back from MATRIX’s briefing with a mixed feeling due to better sales prospect being overshadowed by potential weaker dividend pay-out as its plans and sales target of RM1.0b remains intact. Raised our FY17E sales and earnings by 16% and 5%, respectively. Maintain MARKET PERFORM with an unchanged Target Price of RM2.46.

Sales target unchanged. Despite the challenging property market scene, management remains highly confident in achieving RM1.0b worth of sales albeit having an internal sales target of RM900.0m, citing still fairly strong demand for landed affordable housing priced at the range of RM500.0-600.0k. Looking at its planned launches of RM1.5b over CY16-17 and the potential launch of its affordable housing priced below RM400.0k, we tweaked our sales estimates for FY17 higher by 16% to RM864.2m.

Change in dividend tone. Amongst the small-mid cap developers, MATRIX is one of the few with decent dividend pay-out ratio (DPR) at a minimum 40% of its profit after tax. However, we noticed a change in the tone of its dividend policy where management are looking to pay up to 40% of its profit after tax instead of a minimum 40%. Hence, we reckon that management might be considering scaling down dividend for cash preservation purposes. Assuming that DPR is scaled down to 30%, net dividend would be 10.9-11.9 sen for FY17-18E implying a yield of 4.4-4.7%.

Raising FY17E earnings by 5%. We raised our FY17E eanrings higher by 5%, after our upward revision in FY17E sales to RM864.2m, and introduce our FY18E earnings of RM248.8m, (+11%, YoY). We are keeping our DPR at 40% with DPS of 14.7-16.3sen for FY17-18E.

Outlook. No changes in management’s sales target of RM1.0b for FY17, backed by a pipeline of launches totalling to RM1.5b in CY16 concentrated in Bandar Sri Sendayan (BSS) and Taman Seri Impian (TSI). These projects are Hijayu 3 (GDV: RM115.0m), Hijayu Resort Homes (GDV: RM512.0m), Suriaman 2A (GDV: RM170.0m), Impiana Bayu (GDV: RM48.0m), and its Australian project (GDV: AUD32.0m).

Maintain MARKET PERFORM. We reiterate 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 FY17E FD PER of 6.8x, which already represents 8% premium to its mid-cap peers’ average of 6.3x. The 30% discount is the narrowest among the RNAV discounts applied to mid-cap peers averaging at 64%, due to its affordable landed residential offerings in Seremban (RM500.0-600.0k). Furthermore, its FY17E dividend yield of 5.9% remains decent as compared to its peers’ average of 5.2%. Downside risks to our call include: (1) Weaker-than-expected property sales, (2) Higher-than-expected sales and administrative costs, (3) Negative real estate policies and (4) Tighter lending environments

Source: Kenanga Research - 23 May 2016