MATRIX’s 9M17 core net profit (CNP) was below expectations, accounting for 66%/67% of our/streets’ full-year estimates, due to: (i) lower-than-expected progress billings, and (ii) higher taxrate. A 3.5 sen dividend was declared, bringing 9M17 dividend to 10.0 sen, as expected. Property sales of RM837.3m is on track to meet our and management’s target of RM1.0b. Maintain OUTPERFORM with an unchanged Target Price of RM2.65 given its consistent dividend pay-out which offers a decent yield of 5.5%.

Slightly weaker. 9M17 CNP of RM148.8m came in below expectations, which makes up 66%/67% of our/streets’ full-year estimates. The disappointment is due to: (i) lower-than-expected billings progress, and (ii) higher-than-expected tax rate. Single tier dividend of 3.5 sen was declared bringing 9M17 dividends to 10.0 sen, as expected. On a brighter note, it recorded an impressive property sales performance amid a weak property market bringing its 9M17 sales to RM837.3m, which is on-track to meet our and management’s RM1.0b target.

QoQ wise, 3Q17 CNP saw a growth of 9% albeit 12% decline in revenue due to improvements in EBITDA margin of 18ppt to 61%. The improvement in margin is mainly driven by better margin contribution from the recognition of industrial property sales vis-à-vis mostly lower-end affordable projects recognised in 2Q17. YoY comparisons are not available due to changes in financial year-end.

Outlook. Its unbilled sales number remains healthy at RM903.5m as compared to RM765.3m in 2Q17, providing at least a year’s visibility, and we believe that they are on track to meet our and management’s sales target of RM1.0b for FY17 should they maintain their current sales momentum.

Lowering FY17-18E earnings. Following its weaker-than-expected 9M17 performance, we cut our FY17-18E earnings by 7-5%, respectively after we re-timed our project billings and also adjusted for a higher effective tax rate of 27% (from 25%) for FY17E. Our reduction in earnings has subsequently brought our FY17E DPS lower to 13.7 sen from 14.7 sen based on an unchanged dividend pay-out ratio assumption of 40%.

Maintain OUTPERFORM. Despite our mild reduction in our FY17- 18E earnings, we are still keeping an OUTPERFROM call on MATRIX 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 7.2x 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 - 24 Feb 2017