Investment Highlights

• We maintain BUY on Paramount Corporation (Paramount) with a higher fair value (FV) of RM0.84/share (from RM0.76/share previously) due to rolled forward RNAV-based valuation to FY24F. 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, 1 standard deviation below its 3-year median.

• Although the share price is currently trading at our FV, we expect an adjustment after its 4QFY22 dividend of 15.5 sen (which includes a special dividend of 12 sen) on March 2023, potentially offering an ex-dividend capital gain of 23%. Based on FY22 dividend, the stock already offers an attractive yield of 21%.

• Paramount’s FY22 core net profit (CNP) of RM45mil beat expectations. It was 28% above our forecast and 13% street’s.

• The variance to our forecast was mainly due to a reduction in distribution to private debt securities (PDS) holders subsequent to a redemption in September 22. Meanwhile, the company registered a better-than-expected margin due to higher mix of high-margin projects.

• Hence, we raise our FY23F/FY24F CNP by 14%/3%. This is after taking into account the lower distribution to PDS holders.

• We also take the opportunity to introduce FY25F earnings with a growth of 12% on expectation of a pick-up in launches.

• In FY22, the group’s CNP surged 87% YoY while revenue expanded 24% YoY. This was mainly contributed by a stronger revenue growth of 23% YoY from property development. This was on the back of an acceleration in site progress works with the reopening of the economy, coupled with the improvement in margin as a result of higher mix of high-margin projects and revisions to project costs.

• Paramount achieved its highest level of new sales at RM1.1bil (+36% YoY) in FY22, exceeding its earlier target of RM1bil (Exhibit 3). The key contributors to sales were Utropolis Batu Kawan (21%), Bukit Banyan (12%), and Arinna Kemuning Utama (11%).

• For FY23F, management is setting a higher sales target of RM1.2bil (+9% YoY vs actual FY22 sales) on the back of 7 new launches worth RM1.5bil. These include Jalan Ampang Hilir (34%), Savana Utropolis Batu Kawan (22%), Phase 2 of Sejati Lakeside 2 (13%) and Paramount Palmera in Bukit Minyak, Penang (11%).

• Meanwhile, the group’s unbilled sales expanded 24% YoY and 11% QoQ to RM1.4bil, which represent a cover ratio of 1.3x of our FY24F revenue (Exhibit 3). Klang Valley made up 74% of unbilled sales with the remaining 26% from the northern region (Kedah and Penang).

• The average take-up rate for ongoing projects as at 31 December 2022 was lower at 71% vs. 87% as at 30 September 2022 due to the launches of new projects (including The Atera and Arinna Kemuning Utama). Excluding new launches, the average take-up rate improved QoQ to 92% from 89%.

• In FY22, the coworking division’s LBT narrowed 93% YoY on the back of a revenue surge of 63% YoY. The improved revenue was driven by higher contributions across all Co-labs Coworking outlets and Scalable Malaysia.

• QoQ, the group’s 4QFY22 CNP rose 55% while revenue grew 6%. This was primarily caused by higher mix of high margin projects, coupled with lower distribution to PDS holders due to a recent redemption of RM50mil.

• As at 31 December 2022, Paramount’ unsold inventory level was low at RM58mil (-3% QoQ). 98% of its inventories are made up of commercial properties, the majority of which come from Sekitar 26 (60%), 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.

• Paramount proposed its final dividend of 3.5 sen/share, on top of a special dividend of 12 sen/share (from the divestment of pre-tertiary education business). This translates to an attractive dividend yield of 18% with Paramount currently trading at an undemanding FY24F PE of 8x vs. its 4-year average of 10x.

Source: AmInvest Research - 28 Feb 2023