Hidden Gem Review - PARAMOUNT CORP BHD (PARAMON, 1724) - 22/6/2020
Stock to review: Paramount Corporation Berhad (1724) Current Share price: RM0.91
Principal activities: Paramount Corp Bhd is an investment holding company. The group has three reportable operating segments - Property, Education and Investment and Others. The Property segment which generates maximum revenue is engaged in the development and construction of residential and commercial properties and property investment. The Education segment is involved in the operation of private educational institutions. Investment and Others segment is involved in the investment holding and provision of group-level corporate services.
Current Position of the Group
1. The Group basically is a property developer and another main contributor would be the education segment. They have sold the controlling stake of KDU in which the disposal is completed and they have a gain of RM460mil which was completed on 20 February 2020, which is why the results of the Q1 is the best ever. Although this is a one-off event, I want to highlight later in this review that it is necessary and a positive one. The utilisation of the cash is as follows:
a) There is a distribution to the shareholders for the said disposal amounting to 29 sen. This means giving back to the shareholders which is a positive one, which is to reward shareholders for their loyalty.
b) They have RM132mil which is still unused, which could be use to buy new land to add on to their landbank. In this current environment we're in it is a positive one because most companies do not have sufficient cash, however Paramount have. Like what people say cash is king. In a business sense, I could actually get a cheaper price on any land I wish to purchase, correct? Since so many companies are struggling, I could buy a land in a strategic location with a big discount. Or maybe I could JV with someone who have land in a strategic location but have no money.
c) They have already repaid more than RM133mil of borrowings based on the utilisation of disposal. The impact of this would be lower finance costs to the Group which could be seen in the balance sheet. I'll summarised the movement between 31 March 2020 vs 31 December 2019 so we could see the actual movement in the balances sheet. I'll combined the current liabilities and non current liabiliites together. RM746mil (31 March 2020) vs RM912mil (31 December 2019), which gives us a decrease of RM166mil. As mentioned, this will reduce the finance costs hence it will result in profit being higher.
d) Cash in bank balances increased from RM134mil (31 December 2019) to RM498mil (31 March 2020) which is an increase of RM364mil.
Strengths
1. Good fundamentals: NTA: RM2.61, PTBV: 0.35, PE: 1 (this one is distorted due to the one off disposal, hence based on prudent concept I'll give it 6, which is still good). Price to book value is low for property development companies historically around 0.6, so if we work backwards we'll get RM1.56.
2. Dividend of 4.5 sen, Ex Date 8 July 2020, based on current share price of RM0.91, around 5% yield. This is based on current calculation, if based on full year it will be higher. If were to buy now, you will still be eligible to get the dividend on top of future capital appreciation. This company consistently pay out dividends in each financial year. Please refer to the table on point 3 below.
3. Positive earnings for every quarter. I like companies which have high EPS, because that's value creation to the shareholders. Please refer below:
4. Competency of the Management
a) As mentioned above, I'm saying the disposal is good for the company. Why is that so? Many people perhaps will say once I disposed of the education arm, my revenue would actually decrease. I agree, because with my remaining stake of shares in KDU, my revenue would be x 20% if my remaining stake is 20% for example, hence lower revenue contribution. Let's see in a broader perspective in a business. The disposal is part of the Group's plan to monetised its assets and deteriorating performance of it's education arm, due to lesser profit being made. Thus, since they get a good price for it, hence it make sense that you take the opportunity to dispose of it as your margins had reduced due to more costs being incurred. Due to this, they are better positioned, due to the cash received right before Covid-19 they are able to have extra cash to go through this pandemic. It seems like pure luck, but it isn't. Further due to the disposal they actually return part of it to it's shareholders and also yearly dividends. You can see many companies in Bursa not as generous as them after a windfall.
b) The CEO, Mr Jeffrey Chew Sun Teong is an ex-banker, former OCBC CEO. As per Annual Report 2019, he has 6,817,940 ordinary shares or 1.109% of the Company. Most of his shares he obtained through Long Term Incentive Plan (LTIP) which is when you achieved your KPI, then you get rewarded. This guy got it this way, which means his own interest is alligned with the Company's performance which is the creation and value to the shareholders. The controlling shareholder/owner and him is not related at all, so the shares obtained is basically through his own effort. Parmount experienced consistent growth of revenue over the past 5 years under him. (Page 73 Annual Report 2019). This also tells us that there are good corporate governance in the company.
5. Steady Share Price
The drop during the year is attributable to the special dividend of 29 sen for the disposal. The share is currently steadily going up.
Future Prospect
1. Please refer below:
2. They have a JV in Thailand, meaning they are tapping into the market, aside from their existing project in Sungai Petani and Shah Alam. There is an undersupply in Kedah for residential properties, hence the group had already ventured there rather than competing with so many players in an oversupply of properties in Klang Valley.
Conclusion
Target price: RM1.50, Current price: RM0.91 upside of +64%
Those who might have smaller capital might be able to leverage to the upside of the Company by getting into company warrants, which is Paramon-WA currently trading at RM0.115, Expiry date 28/7/2024. 4 years company warrant which looks promising. There are no special dividends for the disposal anymore, thus it would not affect this warrant.
Thanks for reading!
Disclaimer
This is not a receommendation to buy or sell. Any decision made is the sole responsibility of the user itself. Any financial advise or decision should be clarify with a financial advisor before executing.
https://klse.i3investor.com/blogs/BabyAceStockAnalysis/2020-06-22-story-h1508910141-Hidden_Gem_Review_Paramount_1724_22_6_2020.jsp
Stock to review: Paramount Corporation Berhad (1724) Current Share price: RM0.91
Principal activities: Paramount Corp Bhd is an investment holding company. The group has three reportable operating segments - Property, Education and Investment and Others. The Property segment which generates maximum revenue is engaged in the development and construction of residential and commercial properties and property investment. The Education segment is involved in the operation of private educational institutions. Investment and Others segment is involved in the investment holding and provision of group-level corporate services.
Current Position of the Group
1. The Group basically is a property developer and another main contributor would be the education segment. They have sold the controlling stake of KDU in which the disposal is completed and they have a gain of RM460mil which was completed on 20 February 2020, which is why the results of the Q1 is the best ever. Although this is a one-off event, I want to highlight later in this review that it is necessary and a positive one. The utilisation of the cash is as follows:
a) There is a distribution to the shareholders for the said disposal amounting to 29 sen. This means giving back to the shareholders which is a positive one, which is to reward shareholders for their loyalty.
b) They have RM132mil which is still unused, which could be use to buy new land to add on to their landbank. In this current environment we're in it is a positive one because most companies do not have sufficient cash, however Paramount have. Like what people say cash is king. In a business sense, I could actually get a cheaper price on any land I wish to purchase, correct? Since so many companies are struggling, I could buy a land in a strategic location with a big discount. Or maybe I could JV with someone who have land in a strategic location but have no money.
c) They have already repaid more than RM133mil of borrowings based on the utilisation of disposal. The impact of this would be lower finance costs to the Group which could be seen in the balance sheet. I'll summarised the movement between 31 March 2020 vs 31 December 2019 so we could see the actual movement in the balances sheet. I'll combined the current liabilities and non current liabiliites together. RM746mil (31 March 2020) vs RM912mil (31 December 2019), which gives us a decrease of RM166mil. As mentioned, this will reduce the finance costs hence it will result in profit being higher.
d) Cash in bank balances increased from RM134mil (31 December 2019) to RM498mil (31 March 2020) which is an increase of RM364mil.
Strengths
1. Good fundamentals: NTA: RM2.61, PTBV: 0.35, PE: 1 (this one is distorted due to the one off disposal, hence based on prudent concept I'll give it 6, which is still good). Price to book value is low for property development companies historically around 0.6, so if we work backwards we'll get RM1.56.
2. Dividend of 4.5 sen, Ex Date 8 July 2020, based on current share price of RM0.91, around 5% yield. This is based on current calculation, if based on full year it will be higher. If were to buy now, you will still be eligible to get the dividend on top of future capital appreciation. This company consistently pay out dividends in each financial year. Please refer to the table on point 3 below.
3. Positive earnings for every quarter. I like companies which have high EPS, because that's value creation to the shareholders. Please refer below:
4. Competency of the Management
a) As mentioned above, I'm saying the disposal is good for the company. Why is that so? Many people perhaps will say once I disposed of the education arm, my revenue would actually decrease. I agree, because with my remaining stake of shares in KDU, my revenue would be x 20% if my remaining stake is 20% for example, hence lower revenue contribution. Let's see in a broader perspective in a business. The disposal is part of the Group's plan to monetised its assets and deteriorating performance of it's education arm, due to lesser profit being made. Thus, since they get a good price for it, hence it make sense that you take the opportunity to dispose of it as your margins had reduced due to more costs being incurred. Due to this, they are better positioned, due to the cash received right before Covid-19 they are able to have extra cash to go through this pandemic. It seems like pure luck, but it isn't. Further due to the disposal they actually return part of it to it's shareholders and also yearly dividends. You can see many companies in Bursa not as generous as them after a windfall.
b) The CEO, Mr Jeffrey Chew Sun Teong is an ex-banker, former OCBC CEO. As per Annual Report 2019, he has 6,817,940 ordinary shares or 1.109% of the Company. Most of his shares he obtained through Long Term Incentive Plan (LTIP) which is when you achieved your KPI, then you get rewarded. This guy got it this way, which means his own interest is alligned with the Company's performance which is the creation and value to the shareholders. The controlling shareholder/owner and him is not related at all, so the shares obtained is basically through his own effort. Parmount experienced consistent growth of revenue over the past 5 years under him. (Page 73 Annual Report 2019). This also tells us that there are good corporate governance in the company.
5. Steady Share Price
The drop during the year is attributable to the special dividend of 29 sen for the disposal. The share is currently steadily going up.
Future Prospect
1. Please refer below:
2. They have a JV in Thailand, meaning they are tapping into the market, aside from their existing project in Sungai Petani and Shah Alam. There is an undersupply in Kedah for residential properties, hence the group had already ventured there rather than competing with so many players in an oversupply of properties in Klang Valley.
Conclusion
Target price: RM1.50, Current price: RM0.91 upside of +64%
Those who might have smaller capital might be able to leverage to the upside of the Company by getting into company warrants, which is Paramon-WA currently trading at RM0.115, Expiry date 28/7/2024. 4 years company warrant which looks promising. There are no special dividends for the disposal anymore, thus it would not affect this warrant.
Thanks for reading!
Disclaimer
This is not a receommendation to buy or sell. Any decision made is the sole responsibility of the user itself. Any financial advise or decision should be clarify with a financial advisor before executing.
https://klse.i3investor.com/blogs/BabyAceStockAnalysis/2020-06-22-story-h1508910141-Hidden_Gem_Review_Paramount_1724_22_6_2020.jsp
