Stronger quarters ahead anticipated for Matrix

This article first appeared in The Edge Financial Daily, on August 29, 2018.
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Matrix Concepts Holdings Bhd
(Aug 28, RM2.10)
Maintain buy with an unchanged target price (TP) of RM2.21:
Matrix Concepts Holdings Bhd’s revenue for first quarter of financial year 2019 (1QFY19) of RM230 million translated into a core profit after tax and minority interest of RM50.2 million, which came in below our expectations, accounting for 17.7% and 20.1% of our and consensus full-year forecasts, respectively. The deviation was mainly due to a lower-than-expected margin. It declared a first interim dividend of 3.5 sen per share (1QFY18: 2.6 sen) going ex on Sept 19, representing an annualised yield of 6.3% at current price.

On a quarter-on-quarter basis, 1QFY19 revenue rose by 35%, mainly contributed by the higher recognition of the sales of ongoing development in both residential and commercial properties. Nevertheless, core profit after tax (PAT) only increased by 14.2%, mainly due to overall lower margin of product mix recognised as well as higher selling, general, and administrative costs.

On a year-on-year (y-o-y) basis, 1QFY19 revenue grew by 33.1%, attributed to higher progress billings from the ongoing projects and better property sales. However, the product mix recognised for the quarter comprised more affordable products. As such, core PAT only improved by 10.1% given the lower blended margin.

Matrix clocked in total sales of RM381.6 million (+29.3% from 1QFY18) in 1QFY19 (despite 14th general election factors) attributable to the growing demand of its township and affordable pricing point. This is on track to meet the full-year target of RM1.1 billion. Besides, unbilled sales remained healthy at RM1.2 billion (4QFY18: RM1.1 billion), representing a cover ratio of 1.5 times.

We expect subsequent quarters to be stronger with the recognition of its Carnegie project in Australia coupled with the strong new sales (+29.3% y-o-y) and unbilled sales of 1.5 times cover. For FY19, there is a total of RM1.6 billion worth of projects (FY17: RM1.2 billion) expected to be launched, including the newly launch of Chambers KL. We lower our FY19 and FY20 earnings forecasts by 16.1% and 10.8%, respectively, after lowering our margin but marginally offset by higher sales assumptions. We continue to like Matrix as it is well positioned to ride the affordable housing theme within its successful townships with cheap land cost and sustained property sales. Dividend yield of about 6% is one of the highest in the sector. — Hong Leong Investment Bank Research, Aug 28