Markets
Paramount sales likely to exceed target
FocusM team 
Earnings from newly-acquired REAL Education Group have started kicking in from April
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PARAMOUNT Corp’s Q2FY17 results were below expectations. Earnings from the newly-acquired REAL Education Group have started kicking in from April with a revenue and pre-tax profit contribution of RM22.9 mil and RM3.4 mil respectively. In addition, earnings before interest, tax, depreciation and amortisation for the KDU University College in Glenmarie has started turning positive in Q2.

However, this was not enough to lift the group’s earnings as its property development earnings were affected by slower progress billings. Construction progress for many property projects was affected due to the clampdown on illegal workers in the first half of this year (H1). Meanwhile, the retail component in Utropolis Marketplace continued to incur higher start-up losses. Similar to Q2FY16, a 2.5 sen interim single-tier dividend was declared.

Q2’s new property sales achieved RM176 mil versus RM244 mil in Q1FY17, bringing H1FY17’s total to RM420 mil. This has already exceeded the full-year sales of RM402 mil last year, hence would very likely surpass the management’s sales target of RM500 mil for this year. The strong sales were mainly driven by the Utropolis Batu Kawan project as well as Sejati Residences. The average take-up rate for the retail shops and apartments at Batu Kawan is now above 80%.

Due to the strong property sales in H1, unbilled sales continued to increase to RM534 mil (from RM506 mil in Q1). We, however, cut Paramount’s FY17 earnings forecast by 14% given construction works have been affected by the clampdown on illegal workers. Moreover, billings for its Batu Kawan Utropolis project may take a while to be reflected as the substructure stage typically requires a longer period. Maintain buy with an unchanged target price of RM2.37.

This article first appeared in Focus Malaysia Issue 246.