MATRIX’s 1H17 core net profit (CNP) of RM98.4m was broadly in line, accounting for 44% and 41% of our and streets’ full-year estimates. Single tier dividend of 3.25 sen declared as expected. Property sales of RM507.0m was ahead of our, but within management’s, target. Upgraded to OUTPERFORM from MARKET PERFORM previously, with an unchanged Target Price of RM2.65 given its attractive yields of 5.9%.

1H17 broadly inline. 1H17 CNP of RM98.4m came in broadly in line, accounting for 44% and 41% of our and streets’ full-year expectations as we expect a stronger 2H17. Single tier dividend of 3.25 sen was declared as expected, bringing 1H17 dividends declared to 6.50 sen, in line with our full-year expectations of 14.7 sen. Property sales wise, they managed to rake in RM507.0m worth of sales in 1H17, which is ahead of our, but within management’s, full-year target of RM0.9b and RM1.0b, respectively.

QoQ wise, 2Q17 CNP came off by 11% to RM46.5m albeit the 15% top line growth due to the compression in operating margins to 43% (- 12ppt) on the recognition of lower margin projects as they launched projects priced at the lower end of the affordable segment to cater for the current market demand. YoY comparisons are not available due to changes in financial year-end.

Outlook. Its unbilled sales number remains healthy at RM765.3m, providing at least a year’s visibility, and we believe that they are on track to meet their internal sales target of RM1.0b for FY17 should they are able to maintain their current sales momentum. To recap, they have already launched RM721.6m for 1H17 on the back of its planned launches of RM1.5b scheduled between FY17-18.

Tweak in FY18E earnings. Following its commendable sales performance in 1H17, we also upgraded our FY17E sales to RM1.0b (previously, RM0.9b) closer to management’s target. Thus, we tweaked our FY18E CNP marginally higher by 2% while keeping our FY17E CNP unchanged.

Upgrades to OUTPERFORM. We upgraded MATRIX to OUTPERFROM (previously, MARKET PERFORM) with an unchanged Target Price of RM2.65 based on 25% discount to its FD RNAV of RM3.51, the lowest discount rate applied amongst developers under our coverage due to consistent sales performance amid a weak property market underpinned by its strong positioning in the affordable market segment. At our TP, the stock commands an average FY17-18E PER of 6.8x which is in-line with small-mid cap developers (

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 - 16 Nov 2016