Investment Highlights

• We upgrade our recommendation on Paramount Corporation (Paramount) to BUY from HOLD with a higher fair value (FV) of RM0.76/share (from RM0.74/share previously) which offers a potential capital gain of 6% apart from an attractive FY23F dividend yield of 21%. Our FV is based on a 55% discount to its RNAV (Exhibit 4) and a neutral ESG rating of 3 stars (Exhibit 5).

• Paramount’s 9MFY22 core net profit (CNP) of RM26mil was well above our expectation but within consensus, making up 99% of our FY22F earnings and 74% of street’s.

• The variance to our forecast was mainly due to revisions of project costs in 3QFY22 and stronger-than-expected revenue recognition from its property developments.

• Hence, we raise our FY22F/FY23F/FY24F CNP by 33%/27%/33%. This is after taking into account higher launches subsequent to the launch of its key projects in 2HFY22, coupled with accelerated progress billings following the easing of labour shortages.

• In 9MFY22, the group’s CNP surged 6.3x YoY while revenue expanded 65% YoY. This was mainly contributed by a stronger revenue growth of 64% YoY from property development. This was on the back of a larger base of ongoing developments, coupled with the acceleration of site progress works with the reopening of the economy.

• Paramount secured new sales of RM691mil (+95% YoY) in 9MFY22, attaining 69% of its FY22F sales target of RM1bil (Exhibit 3). The key contributors to sales were Utropolis Batu Kawan (27%), The Atrium (15%), Berkeley Uptown (15%), Bukit Banyan (15%) and Sejati Lakeside (14%).

• Meanwhile, the group’s unbilled sales expanded 28% YoY and 1% QoQ to RM1.3bil, which represented a cover ratio of 1.5x of FY23F revenue (Exhibit 3). Klang Valley made up 72% of unbilled sales with the remaining 28% from the northern region (Kedah and Penang).

• The average take-up rate for its ongoing projects as at 30 September 2022 was stronger at 87% vs. 85% as at 30 June 2022. This was mainly attributed to the higher sales from Utropolis Batu Kawan (from 75% to 90%) and Berkeley Uptown (from 70% to 80%).  

• In 9MFY22, the coworking division’s LBT improved 85% YoY on the back of higher revenue of 80% YoY. The increased revenue was driven by higher contributions from Tropicana Gardens outlet and Scalable Malaysia.

• QoQ, the group’s 3QFY22 PBT rose 33% while revenue grew 15%. This was primarily caused by accelerated construction progress, coupled with revisions of project costs.

• YTD, Paramount has launched projects worth RM1.1bil, which accounted for 87% of its FY22F target of RM1.2bil. With the launching of its key projects, including The Atera in Petaling Jaya (GDV: RM534mil) and Sejati Lakeside 2 (GDV: RM191mil) in November 2022, we believe Paramount remains on track to achieve its FY22F sales target.

• As at 30 September 2022, Paramount’s unsold inventory level was low at RM60mil (-3% QoQ). 98% of its inventories are made up of commercial properties, the majority of which come from Sekitar 26 (58%), Utropolis Batu Kawan (20%) and ATWater (18%). Notably, half of the commercial spaces in Sekitar 26 were leased to Paramount's coworking arm while the commercial property under ATWater is currently utilised as its sales gallery.

• We anticipate Paramount will distribute a special dividend of 12 sen/share in 1QFY23 following the disposal of its remaining equity interests in Paramount Education, Sri KDU Klang and Sri KDU by 4QFY22. This translates to an attractive dividend yield of 21% in FY23F with Paramount currently trading at an undemanding FY23F PE of 9x vs. a 4- year average of 10x.

Source: AmInvest Research - 29 Nov 2022