Post Paramount Corporation Bhd (PCB)’s 1HFY23 investors briefing, we maintain our earnings forecasts and Buy recommendation with an unchanged TP of RM1.17 based on CY24 P/Bk multiple of 0.5x. Looking into 2HFY23, management shared that it will roll out new properties worth RM714mn to drive its sales target of RM1.2bn. While management is cautious about the sector outlook as the brisk sales observed in the market could be partially attributed to temporary demand-supply imbalances, management remains hopeful for sustained growth through a stronger domestic economy and investment-friendly policies. In the meantime, the group is looking to increase the capacity of its co-working division by 45% by the end of this year, leveraging on the rising demand for flexible working space post-Covid.

RM714mn new launches in 2H23 to drive RM1.2bn in sales target

To recap, PCB reported a significant increase in new property sales during 2Q23, with a 20% YoY and 11% QoQ growth, totalling RM325mn. This boosted 1H23 sales to RM617mn, representing a remarkable 45% YoY increase. This outstanding sales performance can be attributed to the substantial rise in property launches during 1H23, totalling RM820mn, compared to just RM54mn in projects launched during the same period in 1H22. Currently, PCB has achieved a healthy 73% take-up rate for its ongoing projects – see Figure 1. We anticipate that PCB will meet its sales target of RM1.2bn thanks to the positive response to its recent property launches. Notably, the sales figures achieved in 1H23 already account for 51% of the target.

Actively on the lookout for new land

Given that PCB targets to achieve annual property sales of not less than RM1.0bn going forward, its remaining GDV of RM7.6bn will be depleted in the next 6-7 years. As such, an active landbank management strategy is crucial to ensuring sustainable growth for the group. We understand that PCB will focus on replenishing its landbank near its existing township, capitalising on the success and popularity of the township, rather than exploring new locations. Given its familiarity with the locations, this approach will enable the group to achieve a quick turnaround. Besides, there is also a plan to expand the industrial property segment further. With robust unbilled sales of RM1.5bn providing the group with cash flow visibility for the next two years, we believe that the group will have little difficulty embarking on land acquisitions. PCB’s latest gross/net gearing ratio was 0.6x/0.4x, indicating a healthy financial position.

Cautious on sector outlook but remain hopeful for investment-friendly policies

In general, developers have reported strong sales in their most recent financial results. Developers under our coverage posted an impressive 22% increase in 1H23 sales. During the briefing, management acknowledged that robust sales performance could be partially attributed to temporary pent-up demand and a reduced housing supply as the Covid-19 restrictions had hindered buying and selling activities. Consequently, when these transient supply and demand imbalances are resolved, management foresees a subdued outlook for the local property sector. Nevertheless, management remains hopeful, suggesting that a more sustainable and robust increase in housing demand can be achieved through a more substantial domestic economic recovery and the implementation of comprehensive policies aimed at attracting both domestic and foreign investment.

Increasing Co-Working space capacity by 45% by year-end

With the Malaysian economy on the path to recovery, management is optimistic about the Co-Working division's performance for the year. Notably, it achieved a profit before tax (PBT) of RM0.6mn in 1H23, a significant improvement from the RM0.3mn loss before tax in 1H22. This improvement was largely attributed to the substantial increase in the average occupancy rate, which rose from 57% in 1H22 to 81%. By the end of August, the average occupancy rate had further increased to 85%, with some outlets, like Tropicana Gardens, reaching an impressive 95% occupancy rate.

Management acknowledges the post-pandemic rebound in demand for coworking spaces due to their flexibility and suitability for various workspace needs. Interestingly, Co-Working spaces, traditionally linked with gig workers, freelancers, and startups, are now attracting large corporations. PCB has also observed this shift, with enterprise and corporate clients now occupying 50% of its co-working space, up significantly from the pre-pandemic level of 20%. In response to this changing demand landscape, PCB is actively pursuing CoWorking division expansion, targeting a 45% capacity increase (52,000 sq ft) by year-end. Expansion discussions are already underway at Tropicana Gardens, and the group is exploring two additional expansion opportunities on the outskirts of Kuala Lumpur.

Impact

No change to our FY23-25 earnings forecasts.

Valuation & Recommendation

We reiterate our optimism in Paramount Corporation Bhd (PCB)’s earnings growth in FY23-25F, backed by record unbilled sales of RM1.5bn, continuing strong property sales, and proactive 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.

We maintain our Buy recommendation on PCB with an unchanged TP of RM1.17/share, based on CY24 P/Bk multiple of 0.5x.

Source: TA Research - 7 Sept 2023