• Maintain BUY with lower TP of MYR1.75 from MYR1.88, 22% upside and c.6% yield. Matrix Concepts’ 2QFY23 (Mar) results came in below expectations, as labour shortage issue continued to affect construction progress. However, this is expected to be resolved in the coming couple of months. Meanwhile, the company is on track to hit its MYR1.3bn sales target given 1HFY23 sales of MYR661.9m. Due to the rising market risk post-15th general election, we lower our TP to MYR1.75.

• 2QFY23 results. Results during the quarter continued to be affected by an industry-wide labour shortage issue and hence revenue was largely flat QoQ. In addition, the contribution from sale of industrial properties was also lower from last quarter, due to limited inventory available at Sendayan Tech Valley, which is almost reaching the tail-end of development. EBIT margin was, however, stronger at 30% vs 28% in the previous quarter, due to higher billings from higher-priced residential products of above MYR600,000/unit. A second interim single tier dividend of 2 sen was declared. Based on larger share base post bonus issue, this represents a payout of almost 50%, in line with its dividend policy.

• 2QFY23 sales momentum stays resilient. New property sales achieved MYR352.7m vs MYR309.2m in 1QFY23. Projects in Sendayan and Bandar Seri Impian remained well-received despite multiple rounds of interest rate hikes this year. Take-up rates for new projects were encouraging, including Hijayu Residence Phase 2 Parcel 1 (47% sold), Bayu Sutera 4 Precinct 1A (39% sold), Tiara Sendayan 13 P14B (100% sold), and Iraman Sendayan 1 (76% sold).

• Update on overseas projects. Matrix has just launched its M333 St Kilda project (GDV: AUD80m) in May 2022. We understand that it is already 23% sold. Meanwhile, Menara Syariah project in Jakarta is on track to be completed in 4QFY23. The project was not affected by the recent earth quake in West Java province.

• Forecasts. We maintain our earnings forecast. Management expects about 400 construction workers to arrive in Dec 2022/Jan 2023, and hence construction works are expected to accelerate in 4QFY23. Unbilled sales rose to MYR1.42bn, vs MYR1.3bn as at 1QFY23.

• Lower TP. In view of the unstable political environment, which has dampened market sentiment, our TP is now based on a larger 35% discount to RNAV (from 30%). Our TP also incorporates a 4% ESG premium given our ESG score of 3.20 for Matrix, using our in-house proprietary methodology.

Source: RHB Research - 24 Nov 2022