Matrix Concepts Holdings Bhd - How much will it lose on building mandatory low-cost housing?

19/4/2015 – The management of Matrix Concepts plans to launch phase 1 of Hijayu 2 and phase 1 of the Sendayan Merchant Square Shop Offices within the same township during Q1FY15.

It is also expecting to launch its clubhouse in the Bandar Sri Sendayan township known as d’Tempat Country Club in the same quarter.

It is confident that it will sustain its profitability through the launches of the development projects as well as the continuous sales of the development projects which have been launched.

Matrix Concepts Holdings Berhad is a family-owned property developer. It is focusing on developing township projects in Bandar Sri Sendayan in Seremban, Negeri Sembilan. The township, called Bandar Sri Sendayan, is about an hour’s drive south of Kuala Lumpur and takes up 5,233 acres.

The company just announced earnings for Q4FY14:

Revenue: +5% to RM 151 mln
Profit: +39% to RM 56.5 mln
Cash flow from operations: RM 130 mln vs RM 39.7 mln
Dividend: 5.25 sen per share, special dividend of 1.25 sen per share vs 5 sen per share

The management of Matrix Concepts said Q4FY14 revenue increased due to its sales of development properties which commanded a better profit margin as compared to the sales of development properties in Q4FY13.

The slight increase in revenue generated and the better margins are from the latest development properties it launched and sold, which led to an increase in the profit before tax in the quarter.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. How often does Matrix need to meet regulations for low-cost housing?

According to Hong Leong Investment Bank, Matrix Concepts is planning to buy a 20-acre land to develop 600 units of landed low-cost houses in order to meet regulations for low-cost housing developments.

Due to lower house prices, management shared at the analyst briefing that the group could incur losses of RM 9 mln for the 600 units.

Hong Leong Investment Bank thinks this is not a significant setback as it could be offset by the higher margins from its upcoming mid to high-end projects.

But still, the development takes time and resources away from Matrix Concepts.

How often does Matrix Concepts need to carry out its obligation to the government for low-cost housing?

Question

2. How is it affected by the new housing policy by the Negeri Sembilan government?

It was reported in an article on 4 March by The Sun that the Negeri Sembilan government has a new housing policy and that the price of 50% of the houses to be built will be controlled by the state government.

In this new policy, 15% of houses built must be worth RM 80,000 and below, 15% must cost RM 250,000 and below, and another 20% must be priced below RM 350,000.

The remaining 50% is up to the developer to sell at their own price.

Developers are also required to allocate 50% for the Bumiputera quota in any housing scheme, compared to 30% previously.

Kenanga said in a report back in November that it was not too concerned with the Bumiputera issue in Matrix Concept's development, given that 40% to 50% of the population mix in Bandar Sri Sendayan are Bumiputera.

But are there other details of the new housing policy that will affect and change Matrix Concepts' plans, since they are involved in both low and mid to high-end developments?

(Read the full story to get all 8 questions)

We have invited the company to an on-camera interview, and/or to reply to our questions in writing.

At the time of publication we have not received a reply (which is why you are seeing this message).

We will update this report if we do.

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