PP 7767/09/2010(025354)

RHB Research
Corporate Highlights
Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

N ew s Updat e
15 September 2010
MARKET DATELINE

Paramount Corp Share Price

Fair Value
:
:
RM4.14
RM5.80
Disposal of Jerneh Insurance Approved Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (PARAMON; Code: 1274) Bloomberg: PAR MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 404.9 57.5 52.9 36.1 7.8 - 3.8 0.9 11.4 Net cash 6.8
2010f 440.9 69.6 57.7 9.0 7.2 - 7.4 0.9 12.8 Net cash 7.0
2011f 472.6 76.1 63.1 9.4 6.6 - 6.7 0.8 13.2 Net cash 7.6
2012f 518.8 86.6 71.8 13.8 5.8 - 6.0 0.8 14.0 Net cash 8.7
Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Disposing Jerneh Insurance for a total RM654m. Paramount announced Issued Capital (m shares) 120.6
that Ministry of Finance (MoF) through Bank Negara Malaysia has approved Market Cap (RMm) 499.5
the proposed disposal by Paramount and Jerneh Asia Berhad of their Daily Trading Vol (m shs) 0.1
respective 20% and 80% equiy interest in Jerneh Insurance Bhd (JIB). The 52wk Price Range (RM) 2.369-4.50
Major Shareholders: (%)
acquirer for JIB is ACE INA International Holdings, which is a provider of
Dato' Teo Chiang Quan 30
commercial property and casualty insurance and re-insurance based in the
Southern Acids 19
US. The proposed disposal will be for a total cash consideration of RM654m,
which is still subject to adjustment to reflect the book value of JIB at the
closing of the proposed disposal. The price tag translates into an estimated FYE Dec FY10 FY11 FY12
2.2-2.4x price-to-book, which is roughly in line with our expectation earlier. EPS chg (%) (1.1) (1.1) (1.1)
Var to Cons (%) - - -
♦ Scope for a special dividend. Given a 20% stake in JIB, Paramount would
pocket about RM131m (or RM1.08 per share). While management did not PE Band Chart
officially indicate their plans for the utilisation of proceeds, we believe the
proceeds would provide scope for a special dividend. To re-iterate, in addition PER = 8x
to our FY10 DPS forecast of 29 sen, assuming a 30 sen special dividend, this PER = 6x
PER = 4x
would translate into a generous yield of 15%.

♦ Other plans for property development and education. We opine that a

special dividend of at least 30 sen is reasonable, both to reward shareholders
as well as to fund its expansion plan for the education division and acquisition
of landbank. In our view, Paramount, which is currently in a net cash position,
Relative Performance To FBM KLCI
has the capacity to gear up for capex. Note that Paramount is currently
setting up an international school (British syllabus) in Damansara. The
construction is about 70% completed. Upon opening, which is scheduled in
Paramount Corp
Sept 2011, the new school will have a capacity of 600 students, with an
estimated fee of RM25k-30k p.a. A new KDU College campus will also be
constructed in Glenmarie, which will double the capacity to 10-12k students.
FBM KLCI
As for its property development division, the acquisition of Cyberjaya and
Glenmarie land is pending completion, tentatively by end 2010 or early 2011.

♦ Risks and concerns. The risks include: 1) cap on lending rate imposed by Bank
Negara Malaysia; 2) higher tax bracket for real property gain tax (RPGT); 3)
delays in launches and approvals; and 4) country risks.

♦ Forecasts. No change in our FY10-12 net profit forecasts. However, EPS

numbers are adjusted slightly after we update the share base due to some
recent conversion of the remaining ESOS. Loong Kok Wen, CFA
(603) 92802237
♦ Maintain Outperform. Our RNAV/share estimate is largely unchanged after loong.kok.wen@rhb.com.my
we update the surplus value for JIB. Based on an unchanged 35% discount to
RNAV, our indicative fair value is kept at RM5.80. Maintain Outperform.

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Table 2. Earnings Forecasts
FYE Dec (RMm) FY09 FY10F FY11F FY12F

Revenue 404.9 440.9 472.6 518.8

Operating profit 71.9 88.4 95.9 109.0
Interest expenses (2.4) (3.1) (3.2) (3.4)
PBT 79.3 97.7 106.9 121.7
Tax (21.8) (28.1) (30.8) (35.1)
Minority interest 0.0 0.0 0.0 0.0
Net profit 57.5 69.6 76.1 86.6
EPS (sen) 52.9 57.7 63.1 71.8
DPS (sen) 28.0 28.8 31.5 35.9

Table 3: RNAV breakdown

Property Development Tenure Remaining Remaining Equity NPV @ 9.1%
size (acres) GDV (RM mil) interest (RM mil)
Northern Region
Bandar Laguna Merbok Freehold 75.2 71 100% 12.3
Bukit Banyan Freehold 492.5 885 100% 54.0

Klang Valley
Kemuning Utama Freehold 206.2 310 100% 43.5
Surian Industrial Park Leasehold 0 123 100% 16.9
Section 13, PJ Leasehold 5.2 400 100% 38.4
Lots 7&9, Kota Damansara Leasehold 9.4 100 100% 12.2
Glenmarie Freehold 21.7 500 100% 48.5
Cyberjaya Freehold 50 527 100% 54.6

Total projects DCF 280.3

Land held for development (book value) & property dev. cost 227.3
Unbilled sales 23.5

Total value for property development 531.1

Education EPS PE target Equity value

(RM mil) (RM) (x) (RM mil)
FY11 net earnings 18.2 0.15 12.0 218.5

Investment assets / properties Tenure NBV Land area Market value

(RM mil) (sqf) (RM mil)
Jerneh - 54.2 - 130.8
Sekolah Sri KDU campus Leasehold 64.0 520,579 86.0
KDU College SS22 Freehold 8.2 116,082 45.0
KDU Penang campus Freehold 29.5 86,046 49.0
Sub-total 310.8

Total value (RM mil) 1,060.4

Net current assets less property development (RM mil) 104.0
Long term liabilities (RM mil) (87.4)
Total RNAV (RM mil) 1,077.1
Shares base (mil) 120.6
RNAV per share (RM) 8.93

Discount 35%
Fair value per share (RM) 5.80
Source: Company, RHBRI

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IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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