We  maintain  our  NEUTRAL  rating  on  Paramount,  with  MYR1.71  FV. 2Q13  results  came  in  below  expectations,  dragged  down  by  lower contribution  from  the  property  development  and  education  divisions. The company’s earnings outlook remains challenging as the bulk of its MYR366m  unbilled  sales  will  only  be  recognised  in  FY14.  Student numbers in the education division have also yet to pick up. 
 
- Below  expectations.  Paramount’s 2Q13 net profit of MYR10.7m  (-28.0%  y-o-y;  -27.5%  q-o-q)  came  in  below  our  expectations,  bringing cumulative 1H13 net profit to MYR25.4m (-9.9% y-o-y) that reached only 40%  of  our  full-year  forecast.  Despite  a  29%  sequential  growth  in turnover,  the  lower  net  profit  was  mainly  due  to  weaker  margins  in  the property  development,  construction  and  education  divisions.  While  the property  division  was  affected  by  low-margin  products,  the  education division’s incurred higher operating costs from the tertiary segment.

- Pipeline  projects.  1H13  new  property  sales  amounted  to  MYR285m, mainly  contributed  by  Utropolis,  a  university  township  in  Glenmarie. Since  its  launch  in  March  2013,  Phase  1  of  Utropolis  has  achieved  a take-up  rate  of  90%.  Phase  2,  which  comprises  418  SOHO  units,  will likely  be  launched  in  4Q13.  The  upcoming  new  KDU  campus  located within  the  Utropolis,  which  will  be  completed  in  2015  (Phase  1),  will anchor the property demand. In late July, Paramount has soft launched 12 units of semi-detached multi-purpose buildings in Phase 1A on its 30-acre freehold land at Shah Alam. Priced at about MYR5-6m each, Phase 1A has a GDV of MYR66.5m. Thus far, three units have been booked.

- Forecasts.  We  have  revised  our  FY13-14  earnings  downwards  by  11-12%  due  to  lower-than-expected  margins  in  1H13.  Earnings  outlook remains challenging as the tertiary segment of the education division has yet  to  turn  around  as  student  enrollment  number  remains  weak.  In addition,  the  bulk  of  its  MYR366m  unbilled  sales  from  the  property development division, is expected to kick in only from FY14 onwards.

- Maintain NEUTRAL. We make no changes to our NEUTRAL rating and MYR1.71  FV,  based  on  a  55%  discount  to  RNAV,  which  we  feel  is appropriate given that the property market is already past its peak in the current cycle.

Source: RHB