Matrix enjoys strong cash flow position

Business & Markets 2013
Written by Kenanga Research
Wednesday, 04 December 2013 11:03
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Matrix Concepts Holdings Bhd
(Dec 3, RM3.24)
Initiating coverage with outperform at target price of RM4.80: We initiate
coverage on Matrix with an “outperform” recommendation and target price of
RM4.80 based on the 20% discount to its revised net asset value (RNAV) of
RM6. We are estimating financial year 2013 ending Dec 31 (FY13) and FY14
earnings of RM146 million (+41% year-on-year [y-o-y]) and RM167 million
(+15% y-o-y) respectively based on sales assumptions of RM708 million to
RM760 million where industrial lot sales at the Sendayan TechValley in Negeri
Sembilan constitute 28% and 21% of our assumptions.
Matrix has two major land parcels in Bandar Sri Sendayan (5,233 acres or
2,093ha) located in Seremban, Negeri Sembilan and Taman Seri Impian in
Kluang, Johor (900 acres). Identifiable remaining gross development value
(GDV) of RM8.3 billion provides visibility up to 2022. Its main drivers are its
township developments and Sendayan TechValley (part of Bandar Sri
Sendayan), which are targeted at the owner-occupier market. Seremban is part
of the Greater Klang Valley-KL conurbation and thus, Bandar Sri Sendayan has
indirectly benefited from the spillover effects due to the significant property
price increase in the Klang Valley. Sendayan TechValley has also attracted
foreign direct investments which will spur economic activities in the area.
Matrix’s demand profiles leave them relatively unscathed from the recent
measures to tighten the property market.
Its land parcels are largely locked at favourably low prices, at around 5% to 6%
of land cost/GDV ratio compared to the industry average of 10% to 20%.
Hence, the lower holding cost for the group means they reap higher gross
margins of 40% to 45% compared to the average gross development margins
of 20% to 30%. It also provides them more pricing flexibility against the competitors which helps combat the recent property cooling
measures.
As at nine months ended Sept 30 of FY13, the company was in a net cash position of 0.36 times post its initial public offering. After netting
off its newly announced landbank commitments, and estimated dividend obligations for FY14E, we estimate that the group has RM124
million (combination of cash and debt) to use for further landbanking in Seremban.
Assuming that land cost is 10% to 15% of GDV and a comfortable net gearing limit of 0.3 times, the group can replenish up to RM0.8
billion to RM1.2 billion worth of GDV from FY14E onwards. However, the group is looking at landbank of between RM300 million to RM700
million next year and is likely to stick within the vicinity of Bandar Sri Sendayan.
Matrix has a minimum 40% dividend payout policy and is the only developer to pay out quarterly dividends so far, which reiterate its strong
cash flow position. Additionally, valuations are attractive with dividend yields of 9.4% and 7.8% and price-earnings ratio (PER) of 6.6 times
and 5.8 times for FY13E and FY14E respectively. This compares favourable with mid-cap peers’ average dividend yields of 4.3% and
4.9% and PER of 8.3 times and 7.1 times for FY13 and FY14 respectively. Even at our target price (TP), the group’s implied FY13E and FY14E dividend yields are 6.3%
and 5.2%, which are still attractive compared to its peers. At our TP, corresponding forward
PERs will be pegged at 9.9 times and 8.6 times, which are slightly higher than its mid-cap
peers’ averages of 8.3 times and 7.1 times. However, this is justifiable as its market cap will
increase from the current RM969 million to RM1.44 billion. Our TP provides a total return of
55%. — Kenanga Research, Dec 3