Despite the market's lack of interest in Paramount Corporation Bhd (PCB) after it sold its recession-proof education segment, we believe the group still has remarkable potential to scale greater heights. With record unbilled sales of RM1.2bn and annual property sales of over RM1.0bn from FY22 onwards, we expect the group to post a core earnings CAGR of 42% for FY21-FY24. Besides, we reckon that PCB still has some RM700mn in assets to monetise (including the latest proposed disposal of its remaining stake in the K-12 business). Meanwhile, its investment in digital enterprises (P2P lending and e-commerce) could add further value upon IPO or trade sale when these ventures mature. We are initiating coverage on PCB with a Buy recommendation with a TP of RM0.78 based on 0.35x CY23 P/Bk (price upside: 19% and dividend yield: 24%).

Background

Paramount Corporation Bhd (PCB) grew from its humble beginnings as a rice miller to become a publicly listed real estate company with interests in education. By making investments in fintech and e-commerce firms, it has now stepped into the digital business space.

Investment Merits

1) Rapid expansion of property development segment, 
2) Asset monetisation exercises are on the cards and, 
3) Investment in digital space is the next frontier.

Forecasts and Valuation

We project FY22/23/24 core earnings of RM45mn/RM59mn/RM72mn, respectively, driven by property sales assumptions of RM1.0bn/RM1.1bn/RM1.2bn for the forecast period. We expect the losses for the coworking segment to narrow in FY22-23 and eventually to turn around in FY24 with a gradual improvement in seat occupancy to 70% (currently at 50%). We value PCB at RM0.78/based on 0.35x CY23 BPS. With a potential total return of 43%, we initiate coverage on PCB with a BUY recommendation.

Source: TA Research - 27 Sept 2022