• Maintain BUY and MYR2.66 TP, 16% upside with c.6% yield. Matrix Concepts’ 1QFY23 (Mar) results missed expectations, due to lingering labour shortage issues that slowed down construction progress. Nevertheless, property sales remained healthy at MYR309.2m vs management’s target of MYR1.3bn by end-FY23. Despite the weaker earnings, its dividend payout remained intact - being supported by a robust balance sheet.

• 1QFY23 results. The industry-wide labour shortage issue has slowed down construction works and, as such, the company’s progress billings during the quarter. In addition, the quarter also saw lower sales of industrial properties – at only MYR17.5m, compared with MYR65.6m in the previous quarter. As a result, its EBIT margin shrank to 28%, vs 34% in 4QFY22. Despite the weaker earnings, a first interim single tier DPS of 3 sen was declared, representing a payout ratio of 53%.

• 1QFY23 sales remained healthy. New property sales amounted to MYR309.2m vs MYR346.4m in 4QFY22. As expected, the affordable mid- range houses remained the key sales contributors. Bayu Sutera 1 Precinct 2A is now 75%-sold, vs 29% in the previous quarter. Hijayu Residence Phase 1 (Parcel 2) has achieved a take-up rate of 75%, from 67% in 4QFY22. New projects Nusari Aman 3 and Bayu Sutera 3 (Precinct 1B) are 35%- and 65%-sold. Management remains committed to achieving its MYR1.3bn sales target by end-FY23.

• More cautious on launches. Given the labour shortage issue, we understand Matrix will now roll out a smaller number of units in a property launch, so that it will be able to deliver vacant possession on time. In line with other sector peers, management is not sure when the labour shortage issue can be resolved.

• Forecasts. We think the delay in labour supply will likely pose downside risks to earnings growth in the coming quarters. Premised on this, we trim FY23-25 earnings by 2-9%. Unbilled sales remained steady at MYR1.3bn, vs MYR1.27bn as at 4QFY22.

• Maintain TP. Our TP is based on a 30% discount to RNAV, as well as 4% ESG premium applied – in view of our ESG score of 3.2 for this stock, using our in-house proprietary methodology.

Source: RHB Research - 24 Aug 2022