Investment Highlights

• We maintain our HOLD recommendation on Paramount Corporation (Paramount) with an unchanged fair value (FV) of RM0.73/share. Our FV is based on a 55% discount to its RNAV (Exhibit 4) and a neutral ESG rating of 3 stars (Exhibit 5).

• Paramount’s 1HFY22 core net profit (CNP) of RM14mil was within expectations, making up 55% of both our and consensus’ FY22F earnings. Hence we make no changes to our forecasts.

• In 1HFY22, the group’s CNP surged 3.6x YoY while revenue expanded 33% YoY. This was mainly contributed by a stronger revenue growth of 31% YoY from property development. This was on the back of a larger base of ongoing developments, coupled with an acceleration of site progress works with the reopening of the economy.

• Paramount secured new sales of RM425mil (+38% YoY) in 1HFY22, attaining 43% of its FY22F sales target of RM1bil (Exhibit 3). The key contributors to sales were Utropolis Batu Kawan (26%), The Atrium (21%), Sejati Lakeside (20%), Berkeley Uptown (15%) and Bukit Banyan (13%).

• Meanwhile, the group’s unbilled sales expanded 22% YoY and 10% QoQ to RM1.2bil, which represented a cover ratio of 1.8x of FY22F revenue (Exhibit 3). Klang Valley made up 75% of unbilled sales with the remaining 25% from the northern region (Kedah and Penang).

• The average take-up rate for its ongoing projects as at 30 June 2022 was strong at 85% vs. 77% as at 31 March 2022. This was mainly attributed to the higher sales from The Atrium (from 61% to 84%), Utropolis Batu Kawan (from 58% to 75%) and Berkeley Uptown (from 58% to 70%).

• In 1HFY22, the coworking division’s LBT narrowed 86% YoY on the back of higher revenue of 63% YoY. The improved revenue was driven by higher contributions from Tropicana Gardens outlet and Scalable Malaysia.

• QoQ, the group’s 2QFY22 PBT only rose 7% despite a higher revenue growth of 20%. This was primarily caused by a lower pre-tax margin of 10% vs. 13% in 1QFY22 as a result of escalating building material costs and labour shortages for its property segment.

• On a positive note, its investment & others division recorded a PBT of RM7mil from a loss of RM3mil in 1QFY22 due to higher interest income.

• Paramount’s 1HFY22 launches of RM54mil accounted for a mere 5% of its FY22F targeted launch of RM1.2bil. In 2HFY22, Paramount aims to launch 5 projects with an estimated gross development value (GDV) of RM1.1bil, including The Atera (45%), Arinna Kemuning Utama (17%), Sejati Lakeside 2 (16%), Bukit Banyan (13%) and Greenwoods Salak Perdana (10%).

• As at 30 June 2022, Paramount’ unsold inventory level was low at RM62mil (-9% QoQ). All its inventory is made up of commercial properties, the majority of which come from Sekitar 26 (61%), Utropolis Batu Kawan (20%) and ATWater (18%). Notably, half of the commercial spaces in Sekitar 26 were leased to Paramount's coworking arm while the commercial property under ATWater is currently utilised as its sales gallery.

• As Paramount is currently trading at an unexciting FY23F PE of 11x vs. a 4-year average of 10x, we see limited upside potential in this stock.

Source: AmInvest Research - 29 Aug 2022