Investment Highlights

• We maintain BUY on Paramount Corporation (Paramount) with a higher RNAV-based fair value (FV) of RM1.31/share (from RM1.12/share previously), based on a 45% discount to our rolled-forward RNAV-based valuation. We made no changes to our neutral ESG rating of 3-star .

• The FV implies a FY25F P/E of 9x, at parity to the average of small-cap property stocks currently.

• We make no changes to our earnings forecast as Paramount’s FY23 core net profit (CNP) of RM75mil came in within expectation. It was only 2% below our forecast and almost on the dot of street’s.

• In FY23, the group’s CNP surged 66% YoY while revenue expanded 19% YoY. This was mainly contributed by stronger revenue growth of 18% YoY from property development on the back of higher property sales. Meanwhile, Paramount registered a stronger FY23 CNP margin of 7% vs. 5% in FY22 given greater savings from the finalisation of some project costings.

• In FY23, Paramount has secured new sales of RM1.1bil (+2% YoY), attaining 93% of its earlier target of RM1.2bil . The key contributors to sales were Sejati Lakeside 2 (24%), The Atera (23%) and Utropolis Batu Kawan (16%).

• Paramount’s FY23 launches of RM886mil (-27% YoY) accounted for only 83% of its earlier target of RM1.1bil.

• For FY24F, management is setting a higher sales target of RM1.4bil (+25% vs. actual FY23 sales), supported by planned launches of RM2.4bil. The main launches are The Ashwood (32%) and phase 2 of The Atera (25%).

• Meanwhile, the group’s unbilled sales decreased 5% QoQ to RM1.4bil, which represents a comfortable cover ratio of 1.3x of our FY25F revenue . Klang Valley made up 73% of unbilled sales with the remaining 27% from the northern region (Kedah and Penang).

• The average take-up rate for ongoing projects as at 31 December 2023 improved to 81% vs. 78% as at 30 September 2023 given stronger sales from most of its projects, particularly Sejati Lakeside 2, The Atera and Paramount Palmera.

• In FY23, the coworking division registered a PBT of RM2mil (vs. LBT of RM0.6mil in FY22) on the back of a revenue surge of 39% YoY. The improved revenue was driven by higher contributions across all Co-labs Coworking outlets and Scalable Malaysia.

• QoQ, the group’s 4QFY23 CNP surged 65% while revenue grew 16%. The stronger result was primarily caused by higher contribution from the “investment & others” division in 4Q2023, stemming from higher interest income, recognition of gain from the disposal of the group’s 5% equity interest in its tertiary education associates and lower non-recurring expenses.

• As at 31 December 2023, Paramount’s unsold inventory level rose 9% QoQ given a slight increase of completed inventories in Sejati Lakeside (RM4mil) and Bukit Banyan (RM2mil). 93% of its inventories are made up of commercial properties, the majority of which come from Sekitar 26 (57%), ATWater (18%) and Utropolis Batu Kawan (15%). Notably, half of the commercial spaces in Sekitar 26 are 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 FY25F P/E of 7x vs. a 4-year average of 8x. Meanwhile, its FY25F dividend yield is compelling at 7%.

Source: AmInvest Research - 29 Feb 2024