Investment Highlights

• We maintain BUY on Paramount Corporation (Paramount) with a higher RNAV-based fair value (FV) of RM1.46/share (from RM1.35/share previously), based on a lower 40% discount (from 45% discount previously) to our RNAV- based valuation. We made no changes to our neutral ESG rating of 3-star .

• The FV implies a FY25F P/E of 10x, at parity to the average for small-cap property stocks currently.

• The lower discount to RNAV stems from improving property sentiment in Malaysia as evidenced by Paramount’s increasing number of launches in FY24F, partially offset by the downward adjustment to FY24F core net profit (CNP) by 11%, driven by weaker-than-expected revenue in 1QFY24.

• Paramount’s 1QFY24 core net profit (CNP) of RM8mil came in below expectations. It accounted for only 10% of both our earlier full-year forecast and street’s.

• The variance to our forecast was mainly due to slower construction progress caused by the festive holidays, which were followed closely by the start of the fasting month in 1QFY24.

• Nevertheless, we expect to see revenue improve for the rest of the year with the normalisation of construction work.

• In 1QFY24, the group’s revenue fell 11% YoY while CNP dropped 33% YoY. This was mainly due to 13% YoY decline in revenue from property development as a result of lower work progress and property sales.

• In 1QFY24, the group's major projects, including Sinaran and Sinaran Avenue at Utropolis Batu Kawan in Penang and Phase 1 of Uptown Residences at Berkeley Uptown in Selangor, were in the final stages of completion. This resulted in relatively less work being completed this quarter.

• In 1QFY24, Paramount has secured new sales of RM101mil (-65% YoY), attaining only 7% of its target of RM1.4bil . The key contributors to sales were Bukit Banyan (42%), The Atera (30%) and Utropolis Batu Kawan (11%).

• The lower sales in 1QFY24 were primarily due to limited launches during the quarter.

• Paramount’s 1QFY24 launches of RM81mil (-81% YoY) accounted for only 3% of its target of RM2.4bil.

• Paramount has launched The Ashwood with a GDV of RM781mil in May 2024. Paramount also plans to launch Phase 2 of The Atera and the final phase of Sejati Residences with a combined GDV of RM784mil by June 2024.

• Meanwhile, the group’s unbilled sales decreased 17% QoQ to RM1.2bil, which represents a comfortable cover ratio of 1x FY25F revenue . Klang Valley made up 79% of unbilled sales with the remaining 21% from the northern region (Kedah and Penang).

• In 1QFY24, the coworking division registered a LBT of RM0.5mil vs. PBT of RM0.1mil in 1QFY23 despite a 31% YoY increase in revenue. This was primarily due to losses recorded by new spaces with The Five opening in January 2024 and Ken TTDI in November 2023.

• QoQ, the group’s 1QFY24 CNP plunged 70% while revenue fell 44%. The weaker result was primarily caused by lower work progress and sales.

• As at 31 March 2024, Paramount’s unsold inventory level inched up 1% QoQ. 94% of its inventories are made up of commercial properties, the majority of which come from Sekitar 26 (56%), ATWater (18%) and Utropolis Batu Kawan (15%). Notably, half of the commercial space in Sekitar 26 is leased to Paramount's coworking arm while the commercial property under ATWater currently utilised as its sales gallery.

• Paramount is currently trading at an attractive FY25F P/E of 9x vs. a 4-year peak of 16x. Meanwhile, its FY25F dividend yield is compelling at 6%.

Source: AmInvest Research - 30 May 2024