Matrix through its JV with NS Corp has acquired 1.38k acres of land in Negeri Sembilan for a RM7bn GDV township development. The new lands are located 3km away from its Bandar Sri Sendayan township. The land acquisition cost is lower than the group’s recent years land acquisition in Bandar Sri Sendayan. We are positive on the acquisition due to (i) land bank replenishment; (ii) strategic location close to Klang Valley; and (iii) lower execution risk due to familiarity of the area. We lowered our FY23/24/25 forecasts by -5.5%/-5.8%/- 5.6% as we account for higher financing cost. Maintain BUY with a higher TP of RM2.73 based on a higher 35% discount (from 25%) to revised RNAV of RM4.20.
Purchasing 1.38k acres of land. Matrix through its wholly-owned subsidiary has entered in to a JV with NS Corporation (NS Corp), a state owned body of Negeri Sembilan on 24 Aug 2022 to form a JV named N9 Matrix (Matrix: 85%, NS Corp: 15%) (see Figure #1 for the corporate structure). The JV in turn entered into a Sale and Purchase agreement to acquire a land measuring 1,382 acres in Mukim Labu, Negeri Sembilan from Sime Darby for RM460m. The purpose of the JV is for Matrix and NS Corp to collaborate in developing the lands into a township with GDV value of RM7bn. Under the agreement, the JV will distribute to the respective JV partners at least 10% of its profits in the first 5 years, and 20% of the profits in the subsequent 5 years. The first phase of the township will be launched tentatively 3 years from now.
Details on the land purchase. The lands are located approximately 3km from Matrix Bandar Sri Sendayan township. The pricing of the land translates to RM7.64 psf, which is lower compared to Matrix’s recent years land acquisition in Bandar Sri Sendayan township at c.RM10psf. The land cost to GDV is at 6.6%, excluding land conversion and infrastructure cost. We estimate that the land conversion cost to be in the range of 1-1.5% of GDV and as such, the converted land cost to GDV is estimated to be 7.5-9%. The infrastructure cost on the hand is estimated to be around 7.5-10% of GDV. We deem the land acquisition cost to be fair.
Funding of the land purchase. The land purchase will be fully funded and developed by Matrix. The payment for the land purchase will be 10% of the purchase price (RM46m) on 24 Aug and the balance (RM414m) within 4.5 months from the conditional date (which is the date after the fulfilment of several conditions including obtaining Matrix shareholders’ approval). Post-acquisition, the group’s net gearing will increase to 0.38x (from 0.14x as at 31 Mar 2022).
We are positive on the development as this will alleviate investor’s concern on the depleting land bank in Bandar Sri Sendayan which currently has a remaining 848 acres of land and remaining GDV of RM3.3bn. With the assumption of a land depletion of 150 acres p.a., the new lands will provide Matrix with earnings visibility of around 8-9 years. As the new township is adjacent to Bandar Sri Sendayan, Matrix is already familiar with the demographic, dynamics and regulations of the area and as such presents lower execution risk. Furthermore, the new lands are more strategic compared to Bandar Sri Sendayan as it is closer to the Klang Valley and thus, is poised to benefit from the spill over demand from Klang Valley homebuyers. Nonetheless, we note that Matrix will only enjoy 85% of the profits from the development due to the JV structure (compared to 100% in its Bandar Sri Sendayan development).
Forecast. We have included the land development in our RNAV calculation. As the first phase of the launch is 3 years from now, the earnings contribution from the land development is outside of our forecast horizon of FY23-25. Nevertheless, we have included the finance cost of the purchase and as such our FY23/24/25 forecast are lowered by -5.5%/-5.8%/-5.6%.
Maintain BUY with a higher TP of RM2.73 based on a higher 35% discount (from 25%) to revised RNAV of RM4.20 (from RM3.39). Our higher RNAV discount is premised on the current industry-wide labour shortage condition impacting the group’s revenue and earnings recognition, which in turn limits the upside to its dividend payout. Having said that, we are still positive on the land acquisition as it provides the group with sustainable growth and longer earnings visibility. We continue to like Matrix due to its proven track record as a township developer as well as its strategically located developments well positioned to capture the spill over demand from Klang Valley.
Source: Hong Leong Investment Bank Research - 26 Aug 2022