Saturday, 5 August 2017

(The Star) Paramount catalysts

Company’s continuing monetisation plan raises hopes of more dividends and higher share price

There could be more special dividends in store for shareholders of Paramount Corp Bhd as the company is planning for further monetisation of its assets, namely in the education segment in a bid to pursue a truly asset-light company.

The diversified property company is also one of the largest public listed education services providers in the country following its acquisition of a 66% controlling stake in the REAL Education Group Sdn Bhd at the beginning of this year.

Other than the REAL Education brand, the company also owns the KDU brand: Sri KDU Schools, KDU College Petaling Jaya and the KDU University College under its belt.

The company had earlier in the week announced plans to hive off Sekolah Sri KDU and Sri KDU International School, to privately owned Alpha Real Investment Trust (REIT) for RM165mil.

Some RM32mil from the proceeds has been earmarked as special dividends to shareholders after the exercise, which is still subject to a due diligence process and relevant approvals from the authorities.

Paramount chief executive officer Jeffrey Chew tells StarBizWeek this could just be the beginning of more of such similar corporate exercises to come.

“Yes, we are planning to monetise more of our institutional assets (in order) to fully achieve our asset-light strategy. But execution would depend on whether the asset has been fully utilised in terms of land usage and built-up,” Chew says.

“Additionally, the operations must have reached a level of maturity whereby it is able to generate greater returns in its core operational business than it can from the ownership of the property,” he adds.

This corporate exercise will also see some de-gearing of its balance sheet and will see this being reduced to 0.43 times from 0.56 times as at the end of last year, the company says.

The properties that were disposed off are located in Kota Damansara, Selangor and they comprise three parcels of 99-year leasehold land (expiring in the year 2104) with a total land area of 11.95 acres, with four buildings with a gross floor area of 17,319.07 square meters.

When the REAL Education Group was acquired by Paramount back in January this year, Chew notes then that the company had “very strong real estate assets” that were also acquired by Paramount.

Paramount can leverage on this network of strong assets if it decides to monetise this part of the REAL business as well.

In a report issued over the week, RHB Research Institute says that among the other assets that can be monetised in the future include the three REAL Education school campuses, as well as the listing of the education division.

“We think these are among the re-rating catalysts in the pipeline that could potentially drive its share price over the next one to two years,” the research house says.

Chew also says that the company would like to move toward eventually splitting the education business from its property business to a separate entity.

“Demerging the two businesses to unlock shareholder value is part of our long term strategy,” he says, adding that the property business still remains the company’s core business.

The high margin education business contributed to almost 27% or RM38.05mil of Paramount’s topline in its latest first quarter ended March 31 and some 38% or RM6.92mil to pretax profit.

The REAL Education Group had also seen its profit margins being on an uptrend in the past three years.

Chew says that the education business allows the company to negate the unpredictable and lumpy earnings recognition from the property business due to its more stable recession proof nature and cashflows.

In an earlier StarBiz report, he noted then that other property companies also had their reach in other more predictable business such as in shopping malls etc.

Chew says the company will continue to stick to this strategy and in light of the asset sales to the REIT and would still maintain its presence in both industries with no plans to further diversify.

“These two core businesses, both leaders in their respective industries, give us the stability and sustainability to withstand the current muted economic environment and we don’t see the need to diversify at this point in time,” he says.

On the property front, Chew also reiterates Paramount’s commitment in this sector and says it would like to further invest in this segment.

“Property remains our core business, and we are looking to invest in landbanks in the central and northern regions, where we already have a significant presence and built up our brand name, while upping the ante on areas like design and product innovation, quality and customer experience,” he says.

He says also that he is confident the property sector at Paramount will continue to grow moving forward, due to its strong project pipelines.

Pertaining to this, RHB Research believes that Paramount would likely exceed its full-year property sales target of RM500mil, as its sales in the first half have been very encouraging.

“Management indicated that its Batu Kawan Utropolis project has seen strong demand, especially with the opening of Design Village, as well as the ongoing construction works of the KDU campus, Aspen Vision City and the IKEA outlet.

“Its unbilled sales as at the first quarter stood at RM506mil,” the research house says.