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Paramount land acquisition price reasonable

Paramount Corp Bhd (May 3, RM5.66)
Maintain market perform at RM5.66 with target price of RM5.92:
Paramount announced that it had entered into an agreement with FK Realty Sdn Bhd for the acquisition of nine parcels of contiguous freehold commercial land in Klang, measuring 12ha. The total cash consideration of RM110 million will be funded by internal funds and borrowings.

The price tag translates into a cost of RM87 psf for the land. It seems reasonable given that the land has been approved for commercial development, hence it has some plot ratio. The land is located within a matured Klang town centre along Jalan Goh Hock Huat. It is easily accessible via the North Klang Valley Expressway, Shapadu Highway, and Federal Highway.

The land is also linked to Kuala Lumpur, Port Klang, Tanjung Malim and Seremban via KTM commuter. The Klang KTM station is situated at Jalan Raya Timer, which is just six minutes drive from the land. In the vicinity, there are Shaw Centre Point, Carrefour Klang, Jusco Bukit Raja and Klang Parade.

The land has been earmarked for an integrated commercial hub development. While the gross development value (GDV) for the project has not been disclosed pending finalisation and approval of a detailed layout plan, the project is expected to commence in FY12, with a development period of about 10 years.

We are positive on this acquisition, as Klang, with an estimated population of some 750,000, is the second largest city in the Klang Valley after Kuala Lumpur. A well-planned commercial development is therefore marketable. The risks include regulatory and country risks, delay in approvals and launches, and competition from peers.

There is no change in our earnings estimates pending guidance from the management on the GDV of the project. We maintain our "market perform" rating on the stock, with an unchanged indicative fair value of RM5.92, based on a 30% discount to realisable net asset value. — RHB Research, May 3

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