Investment Highlights

• We downgrade Paramount Corporation (Paramount) to  HOLD from BUY with an unchanged RNAV-based fair value  (FV) of RM0.84/share as the share price has risen by 9%  since our previous update. Our FV is based on a 55%  discount to its RNAV (Exhibit 4) and a neutral ESG rating of  3 stars (Exhibit 5).
   

• Our FV Implies An FY24F PE of 8x, in Line With Its 4-year  Average. 

• Paramount’s 1QFY23 core net profit (CNP) of RM12mil came  in within our expectations but below consensus estimate,  making up 20% of our FY23F earnings and 18% of street’s.  Hence, we made no changes to our earnings forecast.

• In 1QFY23, the group’s CNP surged 2.3x YoY while revenue  expanded 16% YoY. This was mainly contributed by  stronger revenue growth of 13% YoY from property  development, on the back of the higher sales and larger  base of on-going projects. 

• In 1QFY23, Paramount has secured new sales of RM292mil  (+88% YoY), attaining 24% of its FY23F sales target of  RM1.2bil (Exhibit 3). The key contributors to sales were  Utropolis Batu Kawan (21%), Sejati Lakeside 2 (21%) and  The Atera (16%).

• Paramount’s 1QFY23 launches of RM426mil accounted for 28% of its FY23F targeted launch of RM1.5bil. 

• For the remaining quarters of FY23, Paramount aims to  launch 7 projects with an estimated gross development  value (GDV) of RM1.1bil, including U-Thant enclave (46%),  phase 2 in Sejati Lakeside 2 (17%), Paramount Palmera in  Bukit Minyak (16%), Rumah Idaman in Greenwoods Salak  Perdana (12%) and Bukit Banyan projects (8%).

• Meanwhile, the group’s unbilled sales slid 1% QoQ to  RM1.4bil, which represents a cover ratio of 1.5x of our  FY23F revenue (Exhibit 3). Klang Valley made up 73% of  unbilled sales with the remaining 27% from the northern  region (Kedah and Penang). 

• The average take-up rate for ongoing projects as at 31  March 2023 was lower at 67% vs. 71% as at 31 December  2022 due to the launches of new projects in Utropolis Batu  Kawan and Bukit Banyan.

• In 1QFY23, the coworking division has registered its maiden PBT at RM0.1mil (vs. LBT of RM0.3mil in 1QFY22) on the  back of a revenue surge of 31% YoY. The improved revenue was driven by higher contributions across all Co-labs  Coworking outlets and Scalable Malaysia. 

• QoQ, the group’s 1QFY23 CNP fell 39% while revenue declined 21%. This was primarily caused by lower property  sales (-29% QoQ). Meanwhile, its CNP in the previous quarter (4QFY22) was boosted by the completion of a few phases  and projects. 

• As at 31 March 2023, Paramount’s unsold inventory level was low at RM58mil (-1% QoQ). Almost all of its inventories are made up of commercial properties, the majority of which come from Sekitar 26 (62%), Utropolis Batu Kawan (19%)  and ATWater (19%). 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. 

• As Paramount is currently trading at an unexciting FY24F PE of 7x vs. a 4-year average of 8x, we see limited upside  potential in this stock, although FY23F dividend yield is attractive at 5%

Source: AmInvest Research - 30 May 2023