This article first appeared in The Edge Financial Daily on March 14, 2019

Matrix Concepts Holdings Bhd
(March 13, RM1.95)
Maintained buy and a lower target price (TP) of  RM2.35: Matrix Concepts Holdings Bhd announced a proposed placement exercise involving the issuance of 75 million shares, for example 10% of its current share capital. Assuming an issue price of RM1.96, it will be able to raise RM147 million — enough to fund its equity contributions for its new venture in Indonesia. Our revised TP reflects the 10% dilution as well as the incremental value from the new Indonesian project.

In May 2018, Matrix Concepts entered into a joint venture (JV) with Bangun Kosambi Sukses (BKS) and Nikko Sekuritas Indonesia (NSI) to construct and develop an Islamic Financial District on 3.6ha in West Kosambi Village, Tangerang. BKS is jointly owned by the Agung Sedayu and Salim Groups, which developed PIK 2 Sedayu Indo City in Indonesia. The three parties have set up JV company Fin Centerindo Satu (FCS) with an equity capital of US$100 million (RM409 million). The respective shareholding of Matrix, BKS, and NSI in FCS is 30%, 40% and 30%.

According to the announcement, the placement exercise could be implemented in multiple tranches within a six-month period, and we understand that the company has already identified the taker for the placement shares. Proceeds from the exercise are intended to fund Matrix’s equity participation in FCS. The Islamic Financial District project is an integrated mixed development comprising commercial towers with office and retail components. The project carries a gross development value of US$500 million, with a development period of eight years. The first phase is slated to be launched in late 2019. Although the market may be cautious on the potential risks involved — since Indonesia is a new market for Matrix — we think the venture is worthwhile, because the project is backed by a well-known conglomerate. In addition, the local property market is becoming more saturated, and Indonesia has a large population that should support long-term demand for properties. Management also indicated that the JV may also entail the cooperation among the parties to develop other projects in the future in Indonesia.

The placement exercise is expected to be completed by 1H19. We raise our FY20-FY21 earnings forecasts 1%-2%, as we incorporate the earnings contribution from this project. Meanwhile, despite the slight earnings dilution, we maintain our dividend per share (DPS) forecast as management recently mentioned that its stable cash flow and healthy balance sheet could potentially allow for higher dividends than the current 40% payout ratio. Our DPS forecast implies a payout ratio of about 50%.

Our revised TP is based on an unchanged 25% discount to net asset valuations. — RHB Research, March 13