Acquires Prime Land in Kuala Lumpur

Paramount Corporation Bhd (PCB), through its wholly-owned subsidiary Tanah Bayumas Sdn Bhd, has entered into a Sale and Purchase Agreement (SPA) with Prismaworld Embassyview Sdn Bhd (Receivers and Managers Appointed) for the acquisition of leasehold land measuring 18,317 square meters (4.53 acres) for RM145mn. The property includes an existing residential development, Brunsfield Residence, comprising 93 units of low-rise luxury condominium villas.

Strategic Location

Situated in the prestigious U-Thant enclave of Kuala Lumpur, the property at Lot 18, Jalan U-Thant, Taman U-Thant, is just 700 meters from PCB’s successful high-end developments, The Atrium and The Ashwood at Jalan Ampang Hilir. Surrounded by embassies and luxury residences, this exclusive location offers dual frontage to Jalan U-Thant and Persiaran Madge, making it highly desirable for affluent buyers and expatriates seeking premium residential addresses.

See Appendix 1 for the location of the land.

High-end Residential Project With a GDV of at Least RM300mn

PCB plans to redevelop the site into a high-end residential project featuring strata-titled luxury units. Building on the success of nearby projects, The Atrium (100% sold, excluding show units) and The Ashwood (72% sold), PCB expects the redevelopment to generate a GDV of at least RM300mn. The acquisition is expected to be finalised within six months of the SPA execution, with redevelopment commencing within a year and completing over a five-year period.

Our View

According to the announcement, the RM145mn purchase price was determined based on the property's redevelopment potential into high-end residential units, leveraging its proximity to PCB's successful projects, The Atrium and The Ashwood. This price is further supported by Knight Frank Malaysia's forced sale valuation of RM152.6mn and aligns with the vendor's Information Memorandum dated 15 January 2024, following an offer made on 10 July 2024.

This acquisition at Jalan U Thant, priced at RM145mn (approximately RM735 psf), includes existing structures. In comparison, the Jalan Ampang Hilir property was acquired in July 2020 for RM244mn (around RM1,233 psf) and included existing buildings. Given that both transactions encompass both land and structural values, a direct comparison based solely on per square foot costs may not accurately reflect the relative value of each property.

However, from a land cost-to-GDV perspective, the Jalan U Thant acquisition has a higher ratio of 48% compared to 25% for the Jalan Ampang Hilir site (see Appendix 2 for PCB’s land details in the U-Thant enclave). This elevated ratio suggests that the estimated GDV of RM300mn for the project is likely based on PCB’s plans to repurpose and rejuvenate the existing buildings rather than opting for demolition. This approach is not new for PCB, as demonstrated by The Atrium, where the company successfully transformed an existing structure into a high-end residential development. Considering the property's strategic and prestigious location, we do not rule out the possibility of PCB exploring alternative redevelopment options that could potentially unlock a higher GDV in the future.

Following this acquisition, PCB’s remaining GDV will strengthen to RM6.5bn. Assuming the acquisition is fully debt-funded, PCB’s gross and net gearing levels are projected to rise to 0.67x and 0.56x, respectively, from 0.57x and 0.46x as of September 2024. Despite the higher gearing, these levels remain well within the management’s comfort zone, which caps gross gearing at 0.75x. Additionally, the incoming final dividend of RM25.8mn, based on a five sen per share payout from its 21.54%-owned associate Eco World International Berhad, is expected in January 2025. This dividend will bolster PCB’s cash flow and help ease funding pressures.

Overall, the latest acquisition aligns with PCB's strategy of replenishing land near its existing projects and leveraging their success and popularity to achieve faster turnaround times while capitalising on the group's familiarity with the area. We are mildly positive about this acquisition due to its strategic alignment with PCB's land banking strategy and its location in the prestigious U-Thant enclave, which appeals to affluent buyers. Additionally, the revised Malaysia My Second Home (MM2H) visa program, which now requires visa holders to be homeowners, is expected to boost demand in the upscale residential market by encouraging foreign investment. However, the higher land cost to GDV ratio necessitates careful execution to ensure profitability.

Impact

No change to our FY24-26 earnings forecasts for now, pending the completion of the acquisition.

Valuation & Recommendation

We maintain our Buy recommendation on PCB with an unchanged TP of RM1.68/share, based on a CY25 P/Bk multiple of 0.7x.

Source: TA Research - 13 Dec 2024