In line with our recent sector downgrade (to NEUTRAL), we cut our TP to MYR3.00  (33.3%  upside)  but maintain  BUY. Matrix  builds  affordable homes, for which demand should be more resilient. Its exposure to the industrial segment, which typically accounts for 30% of new sales, is its added advantage in a property market slowdown. The lucrative margins for this segment would act as a buffer against an earnings downside. 
 
Sector  downgrade.  We  have  downgraded  the  property  sector  to NEUTRAL. We  expect  property  transaction  volumes to decline  3-5% in 2015  on  the  back  of  slower  economic  growth  and  a  high  loan  rejection rate. We also anticipate property prices to stay flat as developers would have  difficulty  passing  on  incremental  costs  in  an  environment  of weakening demand. Buyers/investors and developers are likely to adopt a  wait-and-see  stance  in  monitoring  market  conditions  in  1H15,  as  the impact  of  goods  and  services  tax  (GST)  kicks in.  For the  stocks  under our  coverage,  we  estimate  new  sales  to  drop  by  an  average  10-20% YoY vs -25% YoY in 2014 and +41% YoY in 2013.

Exposure  to  industrial  segment  mitigates  downside  risk.  Being  an affordable housing player, we think Matrix Concepts (Matrix) should fare better  compared  to  its  peers.  In  addition,  its  exposure  to  the  industrial segment is an added advantage, especially when the property market is softening. This segment typically makes up 30% of its annual new sales, and  the  lucrative  gross  margin  of  50-60%  would  be  a  strong  buffer against an earnings downside. Over the next six months, we expect the company  to  close  some  land  disposal  deals  that  should  contribute positively to its FY15 earnings.   

TP  drops  to  MYR3.00.  Due  to  the  challenging  outlook  for  2015,  we reduce  our  TP  for  the  stock  to  MYR3.00  (from  MYR3.93),  based  on  a larger 25% discount (from 10%) to its RNAV.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Matrix Concepts is a Negeri Sembilan-based developer that currently has 2,732 acres of land with a total portfolio GDV of MYR8.2bn. The group concentrates mainly on developing residential and commercial properties, as well as selling industrial land.

Recommendation Chart

Source: RHB