Last Friday, MATRIX announced that they are acquiring 132.0 acres of agriculture land in Port Dickson for a total consideration of RM57.0m with a guided GDV of RM700.0m. We are neutral on the acquisition as it is close to our earlier GDV replenishment estimate. No changes to FY18-19E earnings. Maintain MARKET PERFORM with an unchanged Target Price of RM2.65.

Long awaited replenishment. We were not entirely surprised with management’s move to replenish its land bank as they have always been on the look-out for such opportunities. The agriculture land freehold land is adjacent to Bandar Sri Sendayang, measuring 53.4 hectares or 132.0 acres or RM9.9psf representing a premium of 24% compared to their last transacted price of RM8.0psf back in 2015. The premium may have been due to the difficulties getting every owners’ agreement on pricing as it involved 21 transactions with different land owners.

Neutral on acquisition. The location of the land is just adjacent to its development in Bandar Sri Sendayan, i.e. Hijayu, with an estimated GDV of RM700.0m according to the management. We deem that the land acquisition cost to be still fair as it implies a land cost to GDV ratio of 10% at the estimated GDV of RM700.0m, of which we have also factored in a 20% conversion premium on the acquisition cost of RM57.0m. In terms of net gearing, it is expected to increase from 0.15x (as of 4Q17) to 0.21x post acquisition.

Outlook. Its unbilled sales number remains healthy at RM859.5m, providing another year of visibility. Looking at its planned launches worth RM1.4b for FY18, which comprise affordable housing priced below RM500.0k per unit, we are expecting MATRIX to replicate its RM1.0b sales performance for FY18.

FY18-19E earnings unchanged. We make no changes to our FY18- 19E earnings even after the land acquisition, as we do not expect development in that area to take place over the next two years.

MARKET PERFORM. We maintain our MARKET PERFORM recommendation with an unchanged Target Price of RM2.65. While the GDV replenishment of RM700.0m is higher than our replenishment assumption of RM620.0m, it has no material impact on our FD RNAV. Our discount factor of 25% applied to its FD RNAV of RM3.52 is the lowest amongst developers under our coverage. At our TP, the stock commands an average FY18E PER of 7.4x which is higher than smallmid 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 - 7 Aug 2017