Paramount Corporation Berhad (Paramount) kicked off the year on a positive note with a 18% increase in group revenue at RM191.4 million (1Q2018: RM162.2 million). The increase was mainly due to revenue from Paramount Property, Paramount’s property division, which registered a 34% increase in revenue despite soft property sentiment.
Announcing the 1Q2019 results, Paramount Group Chief Executive Officer, Jeffrey Chew said that the Group’s Profit Before Tax (PBT) of RM19.2 million was higher by 7% this quarter (1Q2018: RM18 million) mainly due to higher PBT by the property division but mitigated by lower PBT from the education division.
Revenue for Paramount Property was RM122.2 million (1Q2018: RM91.4 million) while PBT increased 68% to RM14.6 million (1Q2018: RM8.7 million). The 34% rise in revenue was derived primarily from advanced stages of completion at Utropolis Glenmarie, Shah Alam, coupled with contribution from new phases launched in FY2018, namely Greenwoods Salak Perdana and Utropolis Batu Kawan, Penang.
Paramount’s education division, Paramount Education, recorded a revenue of RM69.3 million, marginally lower compared to the corresponding quarter last year of RM70.8 million. However, PBT for the division in 1Q2019 fell to RM9.6 million, a decrease of RM3.1 million (1Q2018: RM12.7 million). This was largely due to lower contribution from Sri KDU Sdn Bhd, REAL Education Group and KDU University College (PG) Sdn Bhd but cushioned by KDU University Sdn Bhd’s lower loss before tax arising from higher student enrolment. In addition, the adoption of the new accounting standards, the Malaysian Financial Reporting Standards (MFRS) 16 Leases since 1 January 2019 lowered the PBT by about RM0.7 million in 1Q2019.
Paramount Group PBT for 1Q2019 was significantly lower at RM19.2 million compared with the preceding quarter’s (4Q2018) PBT of RM43.7 million. This is in line with past trends where the first quarter of the year is typically slower work in progress than the fourth quarter of the preceding year, coupled with lower property sales.
Chew foresees the market to remain soft. Nonetheless, there are nascent hopes of recovery given the initiatives introduced by the government in Budget 2019. “The reduction in the Overnight Policy Rate by 25 basis points to 3% by Bank Negara Malaysia is expected to be positive for property developers. With lower loan instalments, we are hopeful that the purchase sentiments will improve,” said Chew.
“We look forward to launching seven developments including new phases of existing projects this year, while adopting a more cautious approach in response to market conditions. Construction has commenced for the new 1,500-student capacity Sri KDU International School at Berkeley Uptown Klang. When completed, the school is expected to increase Sri KDU’s total capacity by about 50%. The first intake in Berkeley Uptown will be in January 2021,” added Chew.
He said the education space remains challenging and price wars are expected to continue. The effects of lower birth rates over the past two decades are becoming more evident coupled with higher student capacity and the mushrooming of new schools.
Chew said, “We will continue to deliver quality education at different price points to suit diverse needs and affordability all the way from pre-school, K-12 to tertiary. The Group’s growth strategy will focus on R.E.A.L Schools with plans underway to beef up academic quality, restructure the curriculum, undertake refurbishment and upgrade the school’s premises and facilities to improve their appeal to parents and students while strengthening marketing efforts.”
In 2019, REAL Kids added a new pre-school centre in Rawang, making it the 34th centre operated by R.E.A.L Kids across the Klang Valley and five states in Peninsula Malaysia. The Group is also looking for locations for another three to five centres.
On the tertiary front, the strategic partnership between Paramount and the University of Wollongong (UOW) is expected to be completed in 3Q2019. The asset securitisation proposal involving the sale of the university campuses and subsequent leaseback by the tertiary institutions will also be completed by then and is expected to generate recurring rental income for the Group.
“Moving forward, the Group will continue to explore opportunities to unlock the value of its real estate assets and other education assets to enhance returns on capital employed to create long-term shareholder value,” said Chew.