MATRIX: Earnings Stable Amidst Margin Pressures, Target Price Raised

Investment bank RHB reports that the company’s third-quarter FY26 results were largely in line with expectations. Despite a steady revenue stream, profit margins remained under pressure due to a shift towards projects outside Negeri Sembilan, which typically carry lower margins, a trend anticipated to become the new norm. Management aims for these external contributions to exceed 30% of total earnings in the longer term.

Performance Review

The company recorded MYR368 million in property sales during 3QFY26, a slight decline from MYR406.9 million in the preceding quarter. However, year-to-date property sales reached MYR1.15 billion, putting the company well on track to achieve its full-year target of MYR1.6 billion by FY26 end. Sendayan Developments was a significant contributor, accounting for MYR260.4 million (72.6%) of the total, while MVV City added MYR34.6 million. The company also successfully sold MYR450 million worth of industrial land plots. Take-up rates for Levia Residence (Tower A and B) stood at 88.6% and 69.9% respectively. A third interim single-tier dividend of 1.35 sen was declared, bringing the total 9M DPS to 4.85 sen.

Margin Dynamics and Challenges

The company’s EBIT margin for the quarter hovered between 21% and 23%. This margin pressure is attributed to changes in the product mix, specifically increased contributions from lower-margin projects in the Klang Valley (Levia Residence) and Australia (M333 St Kilda). Additionally, the reclassification of certain expenses to the cost of sales also impacted profitability. The healthcare division continued to face challenges due to ongoing capacity expansion and a fee rationalisation program for insurance providers. On a positive note, net gearing improved slightly, easing to 0.19x from 0.21x in the previous quarter.

Future Outlook and Investment Rating

RHB maintains its earnings forecasts for the company. While unbilled sales saw a slight dip to MYR1.5 billion in 3QFY26 from MYR1.6 billion in 2QFY26, the outlook remains robust. MVV City is expected to drive sales in the upcoming quarters, and management is considering launching its next project in the Klang Valley (Puchong) soon.

Given the updated landbank data, RHB has raised its target price for the company to MYR1.79 from MYR1.72, representing a 27% upside and an estimated 6% FY26F yield. The valuation is based on an unchanged 25% discount to RNAV, with an additional 2% premium imputed due to the company’s ESG score of 3.10. RHB maintains a “BUY” recommendation for the stock.