Review

• Paramount Corporation Bhd’s (PCB) 1Q24 net profit to ordinary equity holders of RM7.7mn came in below expectations, accounting for 9.4% of both our and the consensus’ full-year forecasts. The negative variance was largely due to slower-than-expected progress billings.

• YoY: 1Q24 net profit to ordinary equity holders decreased by 33% YoY to RM7.7mn, mainly due to the weaker performance of the property development division.

• The property development division's revenue and PBT decreased by 13% and 21% YoY, respectively, in 1Q24. Lower work progress and sales contributed to the decline in revenue compared to the same period last year. While 1Q is typically the weakest period of the year, the festive holidays and the start of the fasting month further aggravated the lower work progress in 1Q24.

• Co-labs Coworking division's revenue rose 31% YoY to RM3.8mn in 1Q24, driven by higher earnings from existing spaces like Naza Tower and Tropicana Gardens, as well as the new Ken TTDI space (opened in Nov- 23). However, despite increased revenue, the division recorded a loss before tax of RM0.5mn, compared to a profit before tax of RM0.1mn in 1Q23, mainly due to losses from newly opened spaces, The Five (opened in Jan-24) and Ken TTDI.

• QoQ: In 1Q24, the net profit to ordinary shareholders experienced a 70% decrease compared to the previous quarter. This decline was mainly due to a 44% contraction in revenue and a 165% increase in distribution to private debt securities holders QoQ.

• PCB's 1Q24 new property sales declined by 65% YoY and 52% QoQ to RM101mn. This decline can be attributed to a lack of new launches, which decreased by 81% YoY during the quarter, due to deferment in launches and delays in obtaining approvals from the authorities. Unbilled sales declined to RM1.2bn from RM1.4bn a quarter ago.

Impact

• After adjusting our progress billing assumptions for PCB’s ongoing projects, we reduce our FY24 and FY25 earnings projections by 18% and 10%, respectively, but increase our FY26 earnings forecasts by 2%.

Outlook

• PCB maintains its FY24 sales target of RM1.4bn, supported by seven projects with an estimated gross development value of RM2.4bn, of which RM81mn was launched in 1Q24. The largest launch, The Ashwood (GDV: RM781mn), a luxury high-rise residential development in Kuala Lumpur's U-Thant enclave, was launched in May 2024. It received encouraging responses, with more than half of the available units already taken up. Together with the Ashwood launch, PCB expects to launch a total GDV of RM1.6bn by the first half of 2024, including Phase 2 of The Atera in Petaling Jaya and the final phase of Sejati Residences in Cyberjaya, which are scheduled for launch by June 2024.

• Co-labs Coworking has expanded its footprint by 45% YoY to 167,000 sq ft across seven locations in the Klang Valley. The focus will remain on increasing occupancy rates, especially for the two new spaces. In the next two years, PCB aims to expand its co-working space beyond Klang Valley and double its total space under management to 300,000 sq ft across Malaysia.

• We view the recent acquisition of a 21.5% stake in EWI positively, as it accelerates the realisation of PCB’s overseas expansion and diversification strategy. The acquisition, completed on 14 May 2024, for a cash consideration of RM170.6mn, will provide an additional layer of profits to complement PCB’s domestic property development business in the midto long term.

Valuation

• Following the change in earnings, we arrive at a new TP of RM1.68/share for PCB (previously RM1.71/share), based on an unchanged CY25 P/Bk multiple of 0.7x. Maintain Buy.

Source: TA Research - 30 May 2024