Paramount Corp banks on diversification

A MEETING with a banker would probably be all about the numbers. This also seems to ring true for former bankers, like Paramount Corp Bhd group CEO Jeffrey Chew. During his interview with City & Country recently, he started off with a presentation of the company’s financial performance, before going on to highlight numbers from the National Property Information Centre.

Chew had been a high-profile senior banker, with more than 20 years of experience in the financial sector, prior to joining Paramount Corp where the two core businesses are property and education. He says he always joins an industry where he “has no qualification and experience”. He started his career at PricewaterhouseCoopers (PwC), then joined Citibank Bhd for 12 years and later, OCBC Bank (M) Bhd for 11 years. He took on the role of Paramount Corp CEO in July 2014.

“When I joined PwC, I was not an accounting graduate and was still doing my ACCA (Association of Chartered Certified Accountants) then,” says Chew. “I got my ACCA four years later and I decided to quit and move to the banking sector with no experience. Then, I left the industry [for Paramount Corp]. I just like to go to new places where I have no experience and [relevant] qualification.”

Chew says he has learnt a lot in the last two years. He adds that it has been “an interesting and exciting process” in learning about the people, culture and value system of both the property and education industries.

“I know about the two industries, but seeing them from the outside and trying to do things from the inside is very different. There are also challenges in running a listed company, where you need to deal with regulators, analysts and the public.”

He has made some changes since joining Paramount Corp. The company started a sales incentive plan last year where it converts bonuses for the sales team into incentives. Chew says the plan has helped to increase sales. The company has also begun to use real estate agents to sell its projects.

Recently, Paramount Corp launched its new corporate identity to promote its direction going forward. It plans to focus on its customers — especially the younger generation — and is determined to stay in its two businesses.

A higher target

The performance for the financial year ended Dec 31, 2015 (FY2015) was Chew’s first “report card” since joining the company. The property division saw its revenue increase 13% year on year and profit before tax rise 23% y-o-y. Overall, the division contributed 74% to the group’s revenue, and 80% to its profit before tax.

Property sales reached RM432 million in FY2015, thanks to the sale of 506 units. Paramount Corp also saw record sales of more than RM100 million from projects in the northern region. Chew says the company enjoyed a take-up of between 60% and 85% across all its developments.

He attributes the higher numbers to the company offering different products at different price points to suit different investors. At its flagship development, Paramount Utropolis in Glenmarie, property sales increased after KDU University College started operation.

Paramount Corp plans to double its property launches this year to RM770 million, from RM313 million in 2015. It also aims to achieve RM480 million in sales for FY2016, a 10% increase from last year.

The company will continue to leverage the strategies that work. Chew explains the focus will be on real demand, which are products between RM300,000 and RM600,000.

“Properties within this range means monthly instalments of RM1,500 to RM2,000. That translates into household income of between RM6,000 and RM8,000, which is the bulk of the median income of Malaysian households.

“Apart from the price range, we are also leveraging the wide spectrum of products we have, such as semidee, bungalow, superlink, industrial and serviced apartment. We are also diversified in terms of location. Last year, for example, when the market in the Klang Valley wasn’t doing well, our team in Kedah were still selling.”

Outlook

Chew says Paramount Corp benefits from the current lacklustre market conditions because of its size. It can be flexible and devise a strategy using its different product offerings.

Overall, he is optimistic about the local economy, despite predictions it will be even worse this year than the previous year. “For the last few years, the saying had been that each year would be worse than the preceding year. My question is, what are the differences between 2016 and 2015 that you have yet to feel?”

He explains that the property market has been affected since 2013 due to a series of policy changes, starting from the tightening of guidelines and changes in the Real Property Gains Tax in 2013 to the implementation of the Goods and Services Tax in 2015. All this piled pressure on the property market.

“Let’s face it, the oil price drop is good for users because it creates more disposable income. A lot of exporters and manufacturers are doing well and their profit margins have widened due to lower input cost.

“There are still increments and bonuses, while retrenchment is not very high in terms of percentage. Business is still as usual, but of course, there are always winners and losers in every event. But when you put it all together, there is still growth. I am not that pessimistic but the problem is whether the income growth goes back to the economy.”

Malaysia’s gross domestic product grew 5% last year, more than economists’ forecast of 4.9% but less than the 6% seen in 2014.

Launches

This year, Paramount Corp’s launches will include new and existing projects, of which some 30% will be commercial units, 34% landed residential units and 36% integrated high-rise condominiums. Besides the varied product mix, its strategy is to launch projects with a price range of RM300,000 to RM3 million.

“We have landed properties in Bandar Laguna Merbok and SoHo (small office/home office) units in Paramount Utropolis priced below RM300,000. We also have landed properties in Sejati Residences priced at RM3 million and industrial properties at RM5 million. It is a wide range of products that suits different types of buyers and investors,” says Chew.

Existing projects that will be launched this year are Bandar Laguna Merbok in Sungai Petani, Kedah; Greenwoods in Salak Perdana, Sepang; Sejati Residences in Cyberjaya; Bukit Banyan in Sungai Petani; and Paramount Utropolis.

Meanwhile, new developments this year include Sekitar26 Enterprise in Shah Alam, Selangor; Utropolis Batu Kawan in Penang; and a project in Section 13, Petaling Jaya, Selangor.

Sekitar26 Enterprise is part of the larger 30-acre Sekitar26 integrated development. Sitting on five acres, the development will have 117 units of 2 and 3-storey shopoffices with a total gross development value (GDV) of RM117 million.

The launch of Utropolis Batu Kawan and the Section 13 project were put off last year due to amendments to the Strata Titles Act. The projects are now scheduled to be launched in the second half of this year.

Chew says the 28.8-acre Utropolis Batu Kawan will be the company’s first project in Penang and will also be the state’s first university metropolis. As the name suggests, it will replicate the concept of Paramount Utropolis in Glenmarie.

“It is another showcase of Paramount Corp’s strength-through-synergy strategy, with KDU College Penang,” he says. “In Paramount Utropolis, we saw a substantial rise in sales last year because KDU University College started its operations in January 2015 and investors saw the opportunity to rent to students and teachers.”

The parcel in Penang, to be developed over 10 years, fronts Aspen Vision City where Ikea’s regional mall will be. It is an integrated development with residential apartments, commercial lots and a retail centre. The project has a total GDV of RM2 billion.

Meanwhile, the project in Section 13 is said to be the developer’s most prime project. The 5.2-acre leasehold development will be self-contained, with a GDV of RM700 million. It will have corporate offices, serviced apartments, a retail component and a Paramount Property Gallery.

Chew says the development of Bandar Laguna Merbok is nearing its end. First launched in 1996, the 500-acre freehold mixed-use project sits next to Sungai Merbok. The RM920 million development will see its last phase launched this year.

Bandar Banyan, now 30% completed, will be the company’s next focus in Sungai Petani.Bandar Banyan, meanwhile, is a 520-acre freehold development with a total GDV of RM1 billion. It is scheduled to be completed in 2027.

“For Paramount Utropolis, we are changing the plan,” says Chew. “The last phase should have had more than 400 units, with sizes of over 1,000 sq ft. However, we have submitted a plan to change it to smaller units of about 800 sq ft each to make them more affordable. By reducing the unit size and the number of units, we can carve out a piece of land to build a hotel. We are looking for an international operator to manage the hotel, or a joint-venture partner to own the hotel.”

The hotel, with a gross development cost of RM40 million, will be 3-star and have more than 200 rooms. After the change, the last phase will have about 100 units less than the original plan.

“We like the idea of a hotel there because we don’t want to create another 400 units that will compete with existing buyers, who are taking their keys and looking to sell or rent out their units. A hotel will also attract people to the township because we have a small retail mall of about 120,000 sq ft next to it where they can use all the amenities.”

The 11.7-acre freehold Paramount Utropolis was first launched in 2012 and will be completed in 2021. It has a total GDV of RM912 million. Paramount Corp’s total undeveloped landbank stands at over 800 acres, with a total GDV of over RM9 billion.

With all the plans and strategies for this year in place, Chew hopes Paramount Corp will be transformed and that customers will see it differently.

“Over the next three to five years, I’d like to see Paramount Corp become a name that resonates with the community, especially the younger generation. Also, to many people, it is a trusted and respectable brand. We want to go beyond that to also be seen as a company that is innovative, engaged and energetic.”