PARAMON (1724) - (Tradeview 2017) Value Pick No. 5 : Paramount Corporation Bhd. (1724)
Dear fellow readers,
This is my No. 5 Value Pick for 2017.
Once
again, these writings are just my humble highlights (not
recommendation), feel free to have some intellectual discourse on this.
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Value Pick No. 5: Paramount Corporation Bhd (Initial TP RM 1.90)
With
experience in the corporate real estate industry as well, I have
previously written an article on the Malaysia property market for 2017.
Feel free to have a read below :
Let
me be clear, I still believe 2017 to be a slow year for the property
sector as a whole. Unlike some investors, I am not ready to call for a
rebound of the property sector yet. Many have asked me when I think the
market will rebound, my view is 2018. To me, 2017 is likely to be the
bottom.
Having
said that, Paramount Corporation Bhd is the first company in the
property sector that I intend to call. While most of us can agree the
property market is still in a doldrum, pockets of opportunities are
starting to emerge.
I like Paramount for many reason. Firstly, it is reputable brand with long established history having been a part fo the legendary business family in Malaysia, See Hoy Chan. It has its ups and downs over the years. Business wise, the management have been quite conservative and careful in their expansion. Recent years, ever since the change of the CEO to former OCBC CEO, Jeffrey Chew, Paramount navigated the slow property market steadily, started unlocking the value of its landbank and expanded their education business to improve the company cashflow in order to circumvent the property cycles.
Looking
at the 5 year chart from 2012 to 2016, Paramount topline and bottomline
have been growing steadily. Revenue has been growing 5.8% per annum and
profit have been improving around 7% per annum. For a property stock to
maintain such a steady growth is truly remarkable. Additionally, the
profit margin of the group maintains on an average 12% which is
impressive. It tells a tale of strong management and efficient business
strategy. I will elaborate further at the bottom.
Most readers know I like dividend yielding companies regardless of what sector it may be. Lets look the dividend by Paramount of the past 12 quarters. Traditionally, dividends are declared at 2nd & 4th quarter of the year. What i like is the steady increment of the dividend every year to reward shareholders. In 2014, the full year dividend was 7.5 sens, 2015 it was 8.25 and 2016 recently declared 8.5 sens. At current price of RM1.69, the DY of Paramount is 5%. Unlike other property companies such as Huayang, UEM, Tropicana, Paramount is but a handful of property company that manage to keep to their promise to continue rewarding shareholders through the property market's up and down.
When
we look at the results, we can see the property division is still the
key contributor to the group with revenue at 73% and profit at 69%.
There is a slight improvement in 2016 in terms of revenue contribution
from Education Division at 27%. However, the big jump for Profit Before
Tax of 31% stems partially from the realised gain of property disposal.
Nonetheless, we are seeing Paramount working hard to expand the
education division to supplement the company's income. This can be seen
from the recent acquisition of REAL Education Group by Paramount.
Paramount
acquisition of REAL education is synergistic as they adopted a textbook
vertical integration of the entire value chain of education from
Kindergarten to Tertiary. Apart from that, this long term business
strategy will pay off especially by expanding their student database.
Imagine, a child enrolled in REAL education which moves on to Sri KDU
and finally KDU. Apart from the growth of student base, the teachers and
educators would also be able to move from K12 education to Tertiary.
Human resource and talent pool thus is expanded. Truly, this business
strategy is brilliant.
The
2017 prospects by Paramount looks promising as well. From the property
division, they have steady pipeline of projects specifically huge
townships like Utropolis Batu Kawan, Section 13, PJ Senior Living
Concept, Bukit Bayan and Greenwoods Salak Perdana affordable homes
amongst others.
Given
the management confidence of being able to deliver a comparable
performance to 2017, I am pleased to continue to holding Paramount for
mid to long term basis as I am very sure the share price will not stay
at current level.
Looking
at the chart of Paramount, due to the recent good quarterly results, it
broke out of RM1.60. Back in end 2015, it was as high as RM2. There is
so much more upside especially since 2016 results is even better than
2015. There is no reason Paramount cannot return to challenge its high
of RM2 with sound business strategies, good dividend yield, steady
uptrend earnings and solid management. At current price of RM1.65,
Paramount is trading at an undemanding multiple of 9.3x (excluding DY).
With EPS total around 17.73 and applying a multiple of 11x taking into
account of the education business expansion (KDU, Sri KDU and REAL
Education), the fair value is RM1.95. For now, this will be my initial
TP pending the observation of the growth of the education business.
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Food for thought:
PARAMON (1724) - (Tradeview 2017) Value Pick No. 5 : Paramount Corporation Bhd. (1724)
http://www.tradeview.my/2017/03/tradeview-2017-value-pick-no-5.html
