Matrix Concepts Holdings Bhd (April 14, RM2.54)

Maintain buy call with an unchanged target price (TP) of RM2.89: Through its subsidiary Matrix IBS Sdn Bhd, Matrix Concepts Holdings Bhd (80%) has entered into a joint venture (JV) with Nissin Ex Co Ltd (12%) and Nihon House Corp (8%) to set up a manufacturing plant to manufacture prefabricated building materials using the technology of the Industrialised Building System (IBS).

The factory will be located at its Sendayan TechValley, Bandar Sri Sendayan, with a planned capital expenditure (capex) of RM30 million (excluding the cost of a 12-acre [4.86ha] industrial land). The factory is expected to be completed in the third quarter of 2018 and has a production capacity of 700 terrace houses per annum.

We are positive about this development as Matrix stands to benefit from the transfer of IBS technology from both reputable Japan counterparts, potential cost savings, better built quality and improved efficiency.

We expect no immediate material financial impact with the capex to be generated via internal funds. Utilisation of the prefabricated building materials (30% of capacity as the first phase is to ensure quality) is targeted for selected in-house development from the second half of financial year 2019 (2HFY19).

We understand that the cost for IBS building materials is higher than traditional materials by 5% to 10% for residential projects. However, the net margin should not be affected as potential savings from a shorter construction period (by up to 30%), material wastage reduction and tax incentive from the investment would be more than enough to offset the incremental cost.

While the manufacturing plant is currently targeted to fulfil their in-house development, the JV does not rule out the possibility to supply to other housing developers in the longer term when IBS is widely adopted by the industry.

The overall outlook for Matrix remains favourable as it is on track to achieve its RM1 billon sales target after hitting its nine months of  FY17 sales of RM837 million. Current unbilled sales stand at a historical high of RM904 million, representing 1.6 times property development revenue. The immediate pipeline launches in 2017 amount to around RM1 billion.

We continue to like Matrix as it is well positioned to ride on the affordable housing theme (majority of its products are below RM600,000) within its successful township. The High-Speed Rail is a long-term catalyst and its dividend yield is one of the highest in the sector at around 6%.

We maintain “buy” call with an unchanged TP of RM2.89 (based on an unchanged 20% discount to revalued net asset value of RM3.61). — Hong Leong Investment Bank Research, April 14

This article first appeared in The Edge Financial Daily, on April 17, 2017.

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