• Maintain BUY and MYR2.15 TP, 14% upside with c.6% FY24F (Mar) yield. Matrix Concepts’ 1QFY25 results are slightly below estimates, mainly due to the timing of billings and, hence, revenue recognition. As its property sales and unbilled sales remain healthy, we expect earnings to pick up in the coming quarters. MCH is on track to meet its FY25 sales target of MYR1.3bn, as 1QFY25 property sales amounted to MYR321.4m. Long-term growth will be driven by developing/selling 2,382 acres of land in Malaysian Vision Valley (MVV 2.0), entrenching the company’s presence in the Sendayan area.

• 1QFY25 results review. The decline in revenue was primarily due to the timing of billings and revenue recognition (upon 20% work progress, instead of 10% at the down payment stage). However, the decrease in revenue was mitigated by a higher contribution from the education & hospitality, as well as the healthcare segments (+4% QoQ). Note: Mawar Medical Centre, which started contributing to total figures since 2HFY24, generated MYR4.3m in revenue during the quarter. Meanwhile, MCH’s EBIT margin expanded to 29%, from 25% in the previous quarter, reflecting the effectiveness of ongoing cost management efforts as well as optimising sales and marketing expenses. The company is in a net cash position. Just like in 1QFY24, a 2.5 sen first interim DPS was declared.

• Better sales in 1QFY25. 1QFY25 property sales came up to MYR321.4m, vs MYR286.6m in 4QFY24. Projects that were launched in the previous quarters continued to see stronger sales. Eka Heights 3A is now 98%-sold (from 87% in 4QFY24), while Levia Residences in Cheras achieved a take-up rate of 61% (from 55%).

• First land acquisition at MVV 2.0 to be completed in Oct 2024. We expect the company’s net gearing to increase to ~0.1x in 3QFY25, due to the additional borrowings (roughly MYR370m) to be undertaken for funding purposes. The impact on earnings is negligible, as interest expense will be capitalised. As management has plans to carve out about 300 acres in industrial land plots to sell, we believe the proceeds can be channelled to fund the subsequent acquisition of the 1,000-acre land (likely due in two years).

• Forecasts. We make no changes to our earnings forecasts. We expect earnings to pick up in the coming quarters as construction works surpass the 20% mark for most property projects. 2QFY25 should see the recognition of the disposal of an industrial property that may bring a gain of about MYR20m. Unbilled sales rose to MYR1.59bn, from MYR1.2bn as at 4QFY24.

• Maintain TP. Our TP is based on an unchanged 30% discount to RNAV, and with a 2% ESG premium applied, given our ESG score of 3.1 out of 4 for the company.

Source: RHB Research - 23 Aug 2024