Paramount has acquired a 30.7-acre land in Batu Kawan to replicate its Utropolis  university  township  in  Glenmarie,  adding  another  MYR800m GDV to its portfolio. The MYR50 psf purchase price is in line with recent transactions.  Meanwhile,  we  understand  that  some  vacancies  in  its management  team  will  be  filled  soon.  Hence,  we  upgrade  the  stock  to BUY with a new MYR1.88 FV (from MYR1.71).  

New  land.  Paramount  has  acquired  a  30.7-acre  freehold  land  in  Batu Kawan,  Penang,  from  Penang  Development  Corp.  Adopting  a  similar concept to its Utropolis project in Glenmarie, Selangor, 10.4 acres will be allocated  for  a  KDU  University  College  while  the  20.3  acre  balance  is slated  for  an  integrated  development.  As  such,  the  MYR67m  purchase consideration was derived based on MYR40.50 psf (education land) and MYR55  psf  (development  land)  –  in  line  with  recent  transactions  there, given the freehold status of the land. The school will be completed within the next 4-5 years while the property project will be developed over a 10-year period.  

Additional MYR800m GDV. Utropolis has been a success since its Jan 2013 debut. Given the concept and expected student population, the first two phases of the project were fully sold. We are positive on this deal, as the land, which neighbours the proposed premier outlet and IKEA store, is  strategic  for  property  development.  The  new  campus  is  set  to accommodate  5,000  students  in  eight  years’ time.  As the population  on the  mainland  expands,  driven  by  rising  job  opportunities  and  business activities,  the  demand  for  higher  education  and  properties  will  also increase. In addition, the deal strengthens Paramount’s presence in the 
northern  region,  and  it  can  easily  mobilise  its  Sungai  Petani,  Kedah, team  and  facilities  to  kick-off  the  project.  Given  the  land  size  and  the expected selling price, we conservatively estimate a MYR800m GDV for this project.

Forecasts.  We  make  no  changes  to  our  earnings  forecasts,  as  we believe the first launch of the project will be in two years’ time.  

Upgrade  to  BUY.  Paramount  has  become  a  small  Penang  mainland play.  As  we  expect  the  full  management  team  to  be  in  place  by  June 2014, it will be able to unlock its landbank value sooner. We upgrade the stock to BUY (from Neutral) with a higher FV of MYR1.88.

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Company Profile

Paramount has both property development and education business divisions. Its Kemuning Utama township is its flagship projec t. KDU is one of the well-known education brands in Malaysia. Management has plans in place to grow both businesses.

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Source: RHB