Investment Highlights

• We maintain BUY on Paramount Corporation (Paramount) with a higher RNAV-based fair value (FV) of RM1.12/share (from RM1.00/share previously), which implies FY24F P/E of 8.5x, in line with its 4-year average. We made no changes to our neutral ESG rating of 3-star (Exhibits 4-5).

• The higher FV stems from the lower discount rate of 45% (from 50% previously) to RNAV due to improving sentiments in overall property market in Malaysia with the anticipation of revival of mega infrastructural projects and potential relaxation of the conditions for Malaysia My Second Home (MM2H) programme.

• Paramount’s 9MFY23 core net profit (CNP) of RM49mil made up 64% of our FY23F earnings and 65% of street’s. Nevertheless, we deem 9MFY23 earnings to be within expectation.

• Upon the completion of 2 projects in 4QFY23, we anticipate higher revenue recognition as well as greater savings following the finalisation of project costs. Hence, we have made no changes to our earnings forecasts. As a comparison, 9M accounted for 58% of CNP in FY22.

• In 9MFY23, the group’s CNP surged 87% YoY while revenue expanded 17% YoY. This was mainly contributed by stronger revenue growth of 15% YoY from property development on the back of higher property sales. Meanwhile, Paramount registered a stronger 9MFY23 CNP margin of 7% vs. 4% in 9MFY22 given greater savings from the finalisation of some project costings.

• In 9MFY23, Paramount has secured new sales of RM909mil (+32% YoY), attaining 76% of its FY23F sales target of RM1.2bil (Exhibit 3). The key contributors to sales were Sejati Lakeside 2 (24%), The Atera (21%) and Utropolis Batu Kawan (17%).

• Paramount’s 9MFY23 launches of RM820mil accounted for only 55% of its earlier FY23F targeted launch of RM1.5bil. We understand that the launches for The Ashwood with a gross development value (GDV) of RM500mil will be rescheduled to 1QFY24 from 2HFY23. Hence, its FY23F targeted launch has been lowered by 31% to RM1.1bil.

• In 4QFY23, Paramount aims to launch 2 new phases in its existing projects with an estimated GDV of RM246mil, including Sejati Residences (75%) and Bukit Banyan (25%).

• Meanwhile, the group’s unbilled sales increased 2% QoQ to RM1.5bil, which represents a comfortable cover ratio of 1.4x of our FY24F 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 ongoing projects as at 30 September 2023 improved to 78% vs. 73% as at 30 June 2023 given stronger sales from most of its projects, particularly Sejati Lakeside 2 and Paramount Palmera.

• In 9MFY23, the coworking division has registered a PBT of RM1.1mil (vs. LBT of RM0.5mil in 9MFY22) 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.

• QoQ, the group’s 3QFY23 CNP fell 26% while revenue grew 10%. This lower CNP margin was primarily caused by weaker property sales (-10% QoQ), coupled with higher savings from the finalisation of some project costings in 2QFY23.

• As at 30 September 2023, Paramount’s unsold inventory level was flattish QoQ at RM56mil. Almost 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 compelling at 6%.

Source: AmInvest Research - 27 Nov 2023