Investment Highlights

• We maintain BUY on Paramount Corporation (Paramount) with an unchanged RNAV-based fair value (FV) of RM1.46/share, based on a 40% discount to our RNAV- based valuation. We made no changes to our neutral ESG rating of 3-star .

• The FV implies a FY25F P/E of 10x, at parity to the average for small-cap property stocks currently.

• We recently visited Paramount’s sales office in Jalan Ampang which soft launched the Ashwood condominium at U-Thant Kuala Lumpur in May this year, garnering an impressive take up rate of 70% within 2 months for units priced at RM1.6mil-RM4.3mil for buildups of 1.7k-3k sq ft, translating to a premium RM1,150 psf-RM1,200 psf.

• The Ashwood development, located on a 3.6-acre freehold land, encompasses a GDV of RM781mil with 302 condominium units, 40 units of 2-storey duplex, alongside an exclusive low-rise development with 12 units of 3 and 4-storey villa.

• Located 1.8km to Kuala Lumpur city centre and along Kuala Lumpur’s affluent Embassy Row, the U-Thant enclave lies in an elite neighbourhood surrounded by embassies and high commissions, offering a luxury address for expatriate living and privileged class.
• We also took the opportunity to meet up with management and came away with these salient highlights:
  • Lack of launches in 1QFY24 led to Paramount’s unbilled sales dropping 14% QoQ to RM1.2bil from RM1.4bil in 4QFY23. However, with the launch of the Ashwood, unbilled sales could recover back to RM1.4bil levels.
     
  • Aspiration to be a quick turnaround developer like Mah Sing and plans to dispose non-core assets such as its retail mall at Utropolis Marketplace in Shah Alam and remaining associate stakes in tertiary education businesses.

  • Plans to expand its coworking space segment, whichhas a similar business model to WeWork with nosubstantive capital requirements. This segment has a5-year target to grow to 400k-500k sq ft from 167k sq ftcurrently with a revenue of RM100mil and net profit ofRM20mil (RM2mil in FY23). This division suffered aRM0.5mil loss in 1QFY24 due to initial expensesinvolved in the expansion of coworking space, whichincreased by 45% YoY that led to a lower occupancyrate of 65% (vs. 78% in 1QFY23).

  • Paramount currently has 10 ongoing property development projects in Kedah, Penang, Selangor and Kuala Lumpur with a GDV of RM3bil as well as a 49%-owned JV called Na Reva Charoennakhon condominium in Bangkok which carries a project value of RM1.2mil. All in, the average takeup rate for the group’s projects are at a decent 76% currently. In FY24F, the company plans to launch RM2.4bil (2.7x RM886mil in FY23) with a sales target of RM1.4bil (+27% increase from RM1.1bil in FY23).
     
  • While Paramount has ongoing projects in the 34-acre Utropolis Batu Kawan integrated mixed development and 18- acre Paramount Palmera Industrial Park, management has no interest in tendering for the substantive 203-acre Penang Turf Club land in Bukit Gantong as the potential price of RM400-RM700 psf appears too expensive for residential projects while Paramount does not plan to be involved in commercial developments.
     
  • Mildly positive on the group’s equity stake of 21.5% in Eco World International (EWI) given that EWI’s expected dividends of RM109mil from inventory monetisation will reduce Paramount’s entry price of RM1.1mil to RM61mil – accounting for only 6% of EWI’s effective remaining GDV of RM4.4bil (based on current exchange rates for UK and Australia). Management views the investment as a bargain to venture overseas with a strong experienced local player that has an established presence in UK and Australia. This could significantly contribute to Paramount’s earnings when the UK property market recovers and EWI decides to commence new launches.
     
• As at 31 March 2024, Paramount’s unsold inventory level inched up 1% QoQ. 94% of its inventories are made up of commercial properties, the majority of which come from Sekitar 26 (56%), ATWater (18%) and Utropolis Batu Kawan (15%). Notably, half of the commercial space in Sekitar 26 is leased to Paramount's coworking arm while the commercial property under ATWater currently utilised as its sales gallery.
   
• Paramount is currently trading at an attractive FY25F P/E of 8x vs. a 4-year peak of 16x. Meanwhile, its FY25F dividend yield is compelling at 6%.

Source: AmInvest Research - 15 Jul 2024