• Maintain BUY and MYR1.88 TP (adjusted for bonus issue), 34% upside and c.6% FY23F (Mar) yield. We maintain our positive view on Matrix Concepts as the labour shortage issue will likely be resolved by year-end and construction works pick up. Meanwhile, profit margin should be able to sustain given the upward selling price adjustments for most of its township products. The healthy cash flow conversion and solid balance sheet ought to enable it to acquire more landbank, and at the same time, maintain its 50% dividend payout ratio.

• Upward ASP adjustments to mitigate cost pressure. We recently hosted a virtual meeting with MD Ho Kong Soon, CFO Louis Tan and IR Fadzli Suhaimi. Management indicated that the average 5-8% price increase across most of its property products should help to mitigate cost pressure arising from stubbornly high building material prices. Given its wide range of landed products in the existing established townships, MCH has been able to maintain the property sales momentum, and management remains confident to achieve its MYR1.3bn sales target by end-FY23F, despite multiple rounds of interest rate hikes.

• Labour issue persists but is expected to be resolved by December. The labour shortage issue is likely to continue affect 2Q-3QFY23F results, as construction work and hence, progress billings have been delayed. Nevertheless, about 400 new workers are expected to arrive. As such, 4QFY23F earnings should pick up. We are comforted that some projects have obtained the extension of time (EOT), and therefore, liquidated ascertained damages (LAD) are unlikely to be incurred.

• Potential en bloc sale of Menara Shariah may take longer time. Due to longer-than-expected negotiation with the local government agencies for the potential en bloc sale of Menara Syariah twin towers in Jakarta, the consortium may only be able to close the deal after FY23. We remain optimistic with the potential sale given the backing of the strong conglomerate (Agung Sedayu Group, Salim Group) in Indonesia, as well as the growth prospects in Pantai Indah Kapuk (PIK 2).

• Appetite for more landbank. Management explained that the funding for the recently acquired 1,382 acres of new land in Malaysia Vision Valley 2.0 (MVV 2.0) for a consideration of MYR460m is well managed given its MYR1.3bn unbilled sales and cash flow conversion from its existing township projects. If opportunities arise, we feel that the company will still be financially able to purchase more landbank, given its healthy balance sheet position (net gearing at 4% as at 1QFY23). The current slowdown in the property market is also conducive for financially strong developers to snap up landbank at attractive prices in our view.

Source: RHB Research - 31 Oct 2022