Investment Highlights

• We upgrade Paramount Corporation (Paramount) to BUY from HOLD with a higher RNAV-based fair value (FV) of RM1.00/share (from RM0.84/share previously). Our FV is based on a lower discount rate of 50% to our RNAV (from 55% previously) (Exhibit 4) and a neutral ESG rating of 3- star (Exhibit 5).

• The FV implies a FY24F P/E of 8x, in line with its 4-year average.

• The higher FV stems from the upward adjustment to FY23F/FY24F/FY25F core net profit (CNP) by 35%/17%/16%, driven by a 2%/1%/1% improvement in CNP margin. This reflects the stronger-than-expected recovery of CNP margin within the property development segment.

• Paramount’s 1HFY23 core net profit (CNP) of RM38mil came in above expectations, making up 67% of our earlier FY23F earnings and 58% of street’s.

• The variance to our forecast was mainly due to strongerthan-expected operating profit margin, driven by cost savings realised from completed projects in 1HFY23.

• In 1HFY23, the group’s CNP surged 2.7x YoY while revenue expanded 18% YoY. This was mainly contributed by stronger revenue growth of 16% YoY from property development, on the back of the higher sales and larger base of on-going projects. Meanwhile, Paramount registered a stronger CNP margin of 9% vs. 4% in 1HFY22 given greater savings from the finalisation of some project costings.

• In 1HFY23, Paramount has secured new sales of RM617mil (+45% YoY), attaining 51% of its FY23F sales target of RM1.2bil (Exhibit 3). The key contributors to sales were The Atera (23%), Utropolis Batu Kawan (21%), Sejati Lakeside 2 (16%) and Greenwoods Salak Perdana (14%).

• Paramount’s 1HFY23 launches of RM820mil accounted for 53% of its FY23F targeted launch of RM1.5bil.

• In 2HFY23, Paramount aims to launch 4 projects with an estimated gross development value (GDV) of RM714mil, including The Ashwood (70%), Rumah Idaman in Greenwoods Salak Perdana (19%) and Bukit Banyan (11%).

• Meanwhile, the group’s unbilled sales rose 6% QoQ to RM1.5bil, which represents a cover ratio of 1.6x of our FY23F revenue (Exhibit 3). Klang Valley made up 76% of unbilled sales with the remaining 24% from the northern region (Kedah and Penang).

• The average take-up rate for ongoing projects as at 30 June 2023 improved to 73% vs. 67% as at 31 March 2023 given the stronger sales from most of its projects, particularly The Atera and Greenwoods Salak Perdana.

• In 1HFY23, the coworking division has registered a PBT of RM0.6mil (vs. LBT of RM0.3mil in 1HFY22) on the back of a revenue surge of 45% YoY. The improved revenue was driven by higher contributions across all Co-labs Coworking outlets and Scalable Malaysia. In 2HFY23, Paramount plans to expand its existing Tropicana Gardens outlet and introduce 2 new spaces in the Klang Valley, capitalising on rising demand for coworking and flexible office solutions.

• QoQ, the group’s 2QFY23 CNP surged 2.3x while revenue grew 24%. This was primarily caused by stronger property sales (+11% QoQ) and higher savings from the finalisation of some project costings.

• As at 30 June 2023, Paramount’s unsold inventory level was low at RM56mil (-2% QoQ). All of its inventories are made up of commercial properties, the majority of which come from Sekitar 26 (63%), ATWater (20%) and Utropolis Batu Kawan (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.

• Paramount is currently trading at an attractive FY24F P/E of 7x vs. a 4-year average of 8x. Meanwhile, its FY24F dividend yield is attractive at 6.5%.

Source: AmInvest Research - 28 Aug 2023