Review

• Excluding the gain on disposal of investment properties of RM2.6mn, Paramount Corporation Bhd (PCB) reported normalised net profit to ordinary equity holders of RM33.1mn in 1H23. Results came in within expectations, accounting for 53% of our full-year forecasts.

• A first interim dividend of 3sen/share was announced (1H22: 2.5sen/share).

• YoY: 1H23 net profit to ordinary equity holders more than doubled to RM33.1mn, primarily due to notable improvements in the property division.

• The property division demonstrated a strong performance, achieving a profit before tax (PBT) of RM70.3mn in 1H23, representing a 79% increase compared to the RM39.4mn recorded in 1H22. This growth was driven by higher revenue recognition from ongoing projects. On top of that, stronger performance was also driven by savings from the finalisation of some project costings.

• The Co-Working division recorded a PBT of RM0.6mn in 1H23 compared to a loss before tax of RM0.3mn in 1H22. The improvement can be largely attributed to the higher average occupancy rates.

• QoQ: The net profit to ordinary shareholders in 2Q23 experienced an 86% increase compared to the previous quarter. This substantial growth can be mainly attributed to the higher contribution from the property division, which was further bolstered by savings from the finalisation of some project costings.

• PCB’s 2Q23 new property sales increased 20% YoY and 11% QoQ to RM325mn, bringing 1H23 sales to RM617mn (+45% YoY). The latest unbilled sales improved to RM1.5bn from RM1.4bn a quarter ago.

Impact

• Maintain earnings forecasts.

Outlook

• Capitalising on the robust sales momentum attained in the first half of 2023, PCB is strategically positioned to unveil properties with an approximate GDV of RM714mn for 2H23. Buoyed by the favourable reception garnered from recent property launches, the management holds a sanguine outlook on achieving the sales objective of RM1.2bn. Notably, the sales figures achieved in 1H23 already account for 51% of the set target.

• With the ongoing recovery of the Malaysian economy, it is anticipated that the Co-Working division will deliver improved results this year. Management will prioritise increasing occupancy rates in the Co-Working boosted division while exploring expansion opportunities.

Valuation

• With the anticipation of 1) BNM’s OPR hike cycle nearing its end, 2) the added potential for land value enhancement stemming from mega infrastructure projects (HSR, RTS, and MRT3) and 3) the potential implementation of more favourable policies aimed at facilitating homeownership for both local residents and foreigners (relaxation of MM2H), the property sector is currently witnessing a resurgence in investor optimism. This upbeat sentiment is likely to persist, potentially resulting in continued gains for property stocks.

• In the case of PCB, we are bullish on PCB’s future earnings growth in FY23- 25, backed by record unbilled sales of RM1.5bn, continuing strong property sales, and accelerated landbank replenishment. We anticipate FY23 to be another milestone year for PCB, as the group's revenue is projected to surpass RM1bn for the first time.

• Taken together, we raise our TP to RM1.17/share from RM0.94/share previously. This is based on a higher CY24 P/Bk multiple of 0.5x (previously 0.4x). We maintain our Buy recommendation on PCB.

Source: TA Research - 28 Aug 2023