News

Yesterday, MATRIX proposed a bonus issue of shares with a ratio of 1 bonus shares for every 6 shares held, and also bonus issue of free warrants on the basis of 1 free warrant for every 6 shares held.

Comments

We are positive with MATRIX’s proposed 1-for-6 bonus issue of shares and 1-for-6 bonus issue of free warrants corporate exercise, as this would further reward its existing shareholders at the same time increase its liquidity. To recap, this would be MATRIX’s second round of bonus issue since its listing, the first round being the 1-for-2 bonus issue which was proposed exactly 1 year ago (Apr-14).

Pending Bursa and shareholders approvals, the proposed bonus issue of shares ares and fr is ts corporate is expected to be complete by 2H15. Post bonus issue, we would expect its share base to increase by 17% to 533.3m shares. Hence, the current share price would be adjusted from RM3.16 to RM2.71, while our Target Price will also be adjusted accordingly from RM3.05 to RM2.62.

Note that the free warrants exercise price has not been set. Assuming the Ex-Price of the warrant is based on a 20% premium to the last price, our FD RNAV would be reduced to RM3.68 from RM3.74 (post-bonus). However, we opt to keep our valuations unchanged for now pending the warrants price fixing.

Outlook

We are expecting more landbanking newsflow from MATRIX as we believe that the company is still actively scouting for landbank replenishments, especially industrial landbanks closer to its existing development, i.e. Sendayan Tech Valley.

In terms of launches, management are still committed to launch RM1.1b worth of projects in FY15 consists of residential and products,al products i.e. Bandar Sri Sendayan, (GDV: RM670m), Taman Seri Impian (GDV: RM206m), Residency SIGC (GDV: RM229m). Out of the RM1.1b launches, approximately 58% are made up of residential products priced close to RM500.0k per unit excluding industrial land sales.

Forecast

No changes to our FY15-16E earnings.

Rating

Downgrade to MARKET PERFORM

Valuation

While we are positive with the proposed corporate exercise, we are downgrading MATRIX to MARKET PERFORM (previously, OUTPERFORM) with an unchanged Target Price of RM3.05 (ex-bonus, RM2.62). We believe it would be a good time to topslice given the sharp increase in share price by 15.7% over the last 11 days. At current prices, it’s FY15-16E PER is 7.5x vs. mid-cap peers 6.0x-5.5x while net dividend yields of 6.0% is just a slight premium to its peer’s average of 5.5%. Note that our applied FD RNAV discount of 30% for MATRIX is also one of the thinnest within our coverage (range:30%-72%, average:53%). Despite the downgrade in call, we still like MATRIX for its light balance sheet and affordable housing/industrial property positioning and we will review our call when valuations are more compelling, if there are new catalysts and of course, changes in sector dynamics.

Risks to Our Call

Weaker-than-expected property sales.

Higher-than-expected sales and administrative costs.

Negative real estate policies.

Tighter lending environments.

Source: Kenanga Research - 16 Apr 2015