Paramount Corp - Dividend + Bonus issue + Share split

Corporate Highlights
Paramount Corp

? Above expectation.
Paramount’s 4Q10 core net earnings of RM21.6m (+50.4% yoy; 0% qoq) beat our estimate by 12% on a full year basis. Sequential turnover was flat (+4.7% qoq), mainly attributed to slightly higher revenue from the property development and education divisions, due to seasonal intake. Headline 4Q10 net profit of RM85.2m was skewed by a oneoff gain on disposal of Jerneh Insurance Berhad amounted to RM60.8m. A 20 sen final dividend was declared for the quarter, bringing full year DPS to 75 sen, including the 40 sen special dividend. This represents an impressive yield of 17% for the year.

? Bonus issue and share split.
On a side note, Paramount also announced its proposed bonus issue exercise on a basis of 2 shares for every 5 existing shares, as well as share split of 1 share into two shares (the bonus shares and split shares will not be entitled to the proposed final dividend). We are positive on this as the exercise is a form of reward to shareholders and is expected to improve the stock liquidity in the future. Note that, share base will be increased to 337.8m from the current 120.6m upon the completion of
the exercise by 2Q2011.

? Risks and concerns.
The risks include: 1) regulatory risk; 2) delay in approvals and launches; 3) competition from peers; and 4) country risks.

? Forecasts.
In view of the better-than-expected results for FY10, we raise our FY11-12 forecasts by 11-13%. Estimated earnings growth for the next two years is decent at 8.4% and 15.1%.

? Maintain Outperform.
While Paramount is not as aggressive as other big property players in property development, we continue to like the stock for its dividend angle. Over the intermediate term, we think the company could undertake some corporate exercise for its education division, either by listing the KDU College or JV with some reputable partners, which should continue to benefit shareholders. No change to our indicative fair value of RM5.92 for now, based on a 30% discount to RNAV. Maintain Outperform.