MATRIX’s 1Q17 core net profit (CNP) of RM51.9m was within our and streets’ full-year expectations, accounting for 23% and 21% of respective estimates. A 3.25 sen singletier interim dividend declared as expected. Property sales of RM256.0m is on track to meet our and management’s target for FY17. Call/TP is UNDER REVIEW (previously MP/TP: RM2.46) pending our sector update next week.

Steady start. 1Q17 CNP of RM51.9m was within expectations accounting for 23% and 21% of our and street’s full-year estimates, respectively. Its property sales of RM256.0m for 1Q17 are on-track to meet our and management’s target of RM864.2m and RM1.0b, respectively. Single-tier interim dividend of 3.25 sen was declared as expected.

QoQ wise, 1Q17 CNP saw an improvement of 8% despite a 7% decrease in revenue due to lower progressive billings from its commercial and industrial property projects. The improvements were driven by significant lower sales and marketing costs which was down by 27%, coupled with a normalisation of effective tax rate of 26% vis-àvis 32% in 5Q16. Net gearing wise, it inched up to 0.16x from 0.14x previously due to the increase in short-term borrowings for working capital needs.

Outlook. Its unbilled sales stand at RM690.6m with a year visibility and management is targeting to launch another RM700.0m for the rest of FY17. To recap, MATRIX has launched c.RM400.0m worth of projects in Bandar Sri Sendayan and Bandar Seri Impian, i.e. Hijayu 3, Sendayan Merchant Square, and Impiana Bayu between 5Q16 and 1Q17.

Earnings. We are keeping our FY17-18E core earnings unchanged as we are maintaining our sales estimate of RM864.2m for FY17.

UNDER REVIEW. We are placing our call/TP under review pending our sector update next week (previous call/TP:MP/TP@RM2.46 based on 30% discount to our FD RNAV of RM3.51). In our last sector strategy (8/7/16), we had highlighted that we are monitoring two key indicators; (i) developers 1H16 sales must meet 40% of full-year targets (before any revisions during the year), and (ii) unbilled sales must have more than one-year visibility. If majority of developers fail on one or both conditions, we are likely to maintain a negative bias on the sector; however, if both are mostly met, we may upgrade the sector to NEUTRAL. So, we will wait for the results round-up to determine our sector call, and thus, our individual stock calls.

We are also aware that the feel-good sentiment from the upcoming Budget-2017 may be translated into positive news flow, which in turn, may separate the weak sector fundamentals from developers’ share price performance.

Downside risks to our call include: (i) weaker-than-expected property sales, (ii) higher-than-expected sales and administrative costs, (iii) negative real estate policies, and (iv) tighter lending environment.

Source: Kenanga Research - 26 Aug 2016