Wednesday, July 28, 2010

Paramount (RM3.85): Sale of Jerneh Insurance to make Paramount extremely cash-rich

Volume and share prices of Paramount and Jerneh are picking up strongly today. Something's brewing inside? Disposal of Jerneh Insurance is nearing completion?

Anyway, back to Paramount. Paramount Corp Bhd is on track to dispose its 20% equity stake in Jerneh Insurance Bhd (JIB) as announced in Bursa website. Another 80% of JIB is controlled by Jerneh Asia Bhd. (What will happen to Jerneh Asia remains unknown if the sale goes through. Probably delist it and every shareholder might receive close to RM4 per share?? Just rumour only :p) Sales price is unknown. Some rumors mentioned it could be approx. RM700-800 million. The sale will see Paramount receiving at least RM140 million or RM1.19 per share.

From the fundamental perspective, Paramount is very attractive. Net cash is about RM140 million. With this sale, it's going to boost its net cash to RM280 million or RM2.40 per share. Paramount will then concentrate on property development and education. About three quarters of the revenue will come from property development while the remaining will come from education business (Owner of KDU College and KDU International School).

Earnings have been stable at around RM50-60 million p.a. over the past five years. Trailing 12M PER is at 7.0x only. Latest 1Q 2010 net profit was at RM15.7 million, mainly from its property development and education divisions. Sale of Jerneh is not going to affect its earnings as Jerneh's profit contribution is minimal. Having said that, the shares of Paramount could be very illiquid when there're no corporate actions. Thus, though the stocks is attractive, investors should be cautious about stocks' illiquid nature. There's also risk of whether the sale of Jerneh is going through or not.

Prospects as announced in 1Q 2010 quarterly results: "The property division is optimistic of achieving a better performance in 2010 given the buoyant property market and the lock-in unbilled sales brought forward. The expansion plans for the educational services division that began in the second half of 2009 will continue well into 2010/2011. As a result, the performance of the division for the year would be affected due to the budgeted costs for the ongoing upgrading and expansion plans."

Market Data:
Shares issued: 117.7 million
Market Cap: RM453 million
Trailing 12M PER: 7.0x
Book Value per share: RM4.90
Net Cash per share: RM1.20 (Might touch RM2.40 if Jerneh sale is completed)
Net profit over the past 5 years: ~ RM50-60 million p.a.
Div Yield: 7-8%

PS: Hopefully there could be some special dividend for the shareholders after the sale.

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

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