PARAMON: Strategic Initiatives Underpin Growth Amidst Sales Target Adjustment
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading property developer has revised its 2025 sales target downwards following a weaker-than-expected first half, yet maintains a positive outlook, backed by robust strategic growth ambitions and asset monetisation efforts. Despite a significant year-on-year sales decline in the second quarter of 2025, a quarter-on-quarter rebound and resilient demand for key projects are expected to drive improved performance in the coming quarters.
Performance Review and Market Conditions
New property sales experienced a 45% year-on-year drop in 2Q25 but saw a 28% quarter-on-quarter recovery. This brought first-half 2025 sales to RM525 million, an 18% decline year-on-year, primarily attributed to an 80% contraction in new launches compared to the previous year. Consequently, the company has prudently reduced its 2025 sales target by 20% to RM1.2 billion and trimmed its launch pipeline to RM1.0 billion, following the removal of certain planned projects due to ongoing litigations and scaling back.
While acknowledging prevailing market headwinds, the investment bank views the sales target adjustment as pragmatic. Resilient demand for the company’s products, particularly in The Ashwood KL, Utropolis Batu Kawan, and Embun Hill Bukit Mertajam, alongside a diversified geographical footprint, are expected to provide a natural hedge against localised market softness. With RM0.6 billion of planned launches in the pipeline, sales momentum is anticipated to accelerate meaningfully in the second half of 2025 to meet the revised target.
Strategic Growth and Financial Health
Management has reiterated its strategic pivot towards more sustainable, quality-driven growth, aiming to achieve a Return on Equity (ROE) above 10% by 2030, a significant increase from 7% in FY24 and approximately 2% in 2021. This goal is underpinned by a disciplined strategy that includes securing strategic land parcels capable of generating at least a 6% return on assets (ROA), leveraging its current gross gearing of 0.66x, and diversifying into recurring income streams.
To support future annual property sales, the group has set an ambitious target of acquiring RM6 billion in new gross development value (GDV) land in 2025 alone, with RM1.7 billion already secured. This active landbank replenishment is crucial given that the remaining RM5.2 billion GDV could be depleted within three to four years at the projected sales rate. While this aggressive landbanking plan may temporarily lift gross gearing, the flexibility to adopt joint ventures or milestone-based payments is expected to mitigate balance sheet pressure.
Asset Monetisation and Diversification
Further enhancing capital efficiency, the company is actively unlocking value from up to RM1.0 billion in non-core assets. These include education campuses, a hotel, an office tower, and a stake in another real estate investment vehicle. Monetising these assets, through outright disposal or lease renegotiation, will release capital tied to underperforming assets and allow redeployment into higher-yielding property developments, serving as a key lever to boost ROE.
The co-working business, Co-labs, continues its expansion, with eight locations across Klang Valley and a 11% year-on-year increase in total space. Despite a wider loss in the first half of 2025 due to lower occupancy (66% from 70%) following a new outlet opening, management is confident that the new outlets will turn profitable within their first year. Co-labs plans to open its ninth outlet in Johor Bahru in 4Q25, marking its first venture outside Klang Valley, with further expansion into the region expected in the coming years.
Outlook and Recommendation
The investment bank maintains its “BUY” recommendation and an unchanged target price of RM1.46 per share. This valuation is based on a CY26 P/Bk multiple of 0.6x, noting that the stock remains deeply undervalued, trading at a P/E of 7.3x and P/Bk of 0.4x, significantly below the developer sector averages. With a superior dividend yield exceeding 7%, the stock offers limited downside risk. The earnings forecasts for FY25-27 are also maintained.
