Matrix Concepts Holdings Bhd (Oct 4, RM2.06)
Maintain buy with an unchanged target price of RM2.21: Matrix Concepts Holdings Bhd has entered into a joint venture (JV) agreement (30% stake) for the joint development of the Islamic financial district in PIK2, Jakarta. Overall, we are positive on the JV as this may lead to more opportunities to expand in Indonesia by leveraging the expertise and connections of the respective partners. 

With limited information, we estimate the gross development value (GDV) of the project to be around RM3.6 billion and increase our estimated revalued net asset value (RNAV) by 5.6%. Should the entire RM124 million equity participation be fully debt funded, net gearing could rise to 0.16 times while equity funding via placement cannot be ruled out. 

Following the memorandum of understanding signed in May, Matrix has now entered into a JV agreement with PT Bangun Kosambi Sukses (BKS) and PT Nikko Sekuritas Indonesia (NSI) for the joint development of the Islamic financial district in Kosambi district, Tangerang Regency, Banten Province, Jakarta. Matrix holds a 30% stake in the newly incorporated company called PT Fin Centerindo Satu, while BKS and NSI owns 40% and 30%, respectively. 

The Islamic financial district is part of an initiative by the Indonesian government to champion the Islamic finance discipline located within the mega development within Pantai Indah Kapuk 2 (PIK 2) Sedayu Indo City, a 10-minute drive from Jakarta Airport. We understand that the Phase 1 of the project consists of twin towers of offices on top of a retail podium, with one of the towers targeted to be sold, and the other to be held as investment properties. 

Subsequently, Phase 2 of the project would consist of residential portions which will be determined later. 

The design, potential GDV and cost for the Islamic financial district have yet to be finalised currently. The potential GDV for Phase 1 could be around RM1.1 billion while Phase 2 could be worth up to RM2.5 billion. At an earnings before interest and tax margin of 23%, the estimated net present value from the entire project would increase our estimated RNAV by 5.6%. 

The initial share capital of the JV is RM416.5 million with 52% of the capital to be paid within six months from the date of the JV agreement and the remaining 48% to be satisfied after the completion of initial share capital injection. Any other subsequent funding will be done at the JV level. 

The RM124 million equity participation of Matrix will be funded via internally generated funds, bank borrowings or equity fund raising exercise via placement. Should the funding turn out to be solely via debt instruments, the net gearing could rise to 0.16 times from the current 0.06 times. 

We are positive on the venture into Jakarta as we believe this will lead to more opportunities for Matrix to expand in Indonesia. Besides, leveraging the expertise and connections of the JV partners, BKS (owned by Agung Sedayu Group and Salim Group) and NSI would allow Matrix to build its reputation and tap into the necessary platform and local expertise. 

We continue to like Matrix as it is well-positioned to ride on affordable housing schemes within its successful townships with cheap land cost and sustained property sales. Dividend yield of about 6% is one of the highest in the sector. — Hong Leong Investment Bank Research, Oct 4

This article first appeared in The Edge Financial Daily, on Oct 5, 2018.

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