Envictus boost to Paramount profit base
Group chief executive officer Jeffrey Chew Sun Teong said the group's RM600mil property sales achieved so far fall short of its RM1.5bil full-year target for the financial year ending Dec 31, 2025 (FY25).
'There is a chance that we may have to revise our sales target. We do not see many catalysts to boost the property market in 2H25.
'While we do not expect it to be very good, we also do not foresee it collapsing.
'The market is softer this year than in 2022 to 2024, which saw steady improvement following the Covid-19 pandemic,' he said during the briefing to elaborate on the company's proposed acquisition of Envictus.
Touching on headwinds, Chew said the US tariff is a 'big concern'. And with the impending cost escalation from the fuel subsidy rationalisation initiative and the expanded sales and service tax, he said buyers are holding back.
He added that Bank Negara's recent 25-basis-point interest rate cut to 2.75% is positive for companies by lowering borrowing costs and for homebuyers, as they make housing more affordable. However, Chew said this reduction was 'not enough (to spur demand) unless there are two more rate cuts'.
'If the Federal Reserve cuts rates and Bank Negara follows with two more rounds of rate cuts, then that could become a catalyst for property purchases,' he said.
Chew explained that Paramount's property segment, which has expanded from RM300mil in sales between 2014 and 2015 to RM1.4bil currently, is reaching a stage where such an 'aggressive' growth pace is no longer sustainable.
'You can achieve 15% growth when sales are at RM300mil, but once they hit RM1.4bil, compounding at that rate will get you into trouble,' he said, adding that it becomes difficult to manage the number of projects that it has.
'So the board agreed to moderate the group's sales growth, aiming for a 7% to 8% annual growth in property sales volume over the next five to 10 years.
'We need to source another 5% growth from non-property sources, and our investment in Envictus will help us achieve that broader profit base,' Chew added.
On Tuesday, Paramount announced that it will be forking out S$38.33mil (RM126.32mil) to acquire a 28% stake in Singapore-based Envictus from JAG Capital Holdings Sdn Bhd.
Envictus is principally involved in the F&B industry and operates across three core segments which are food services, trading and frozen food, and dairies.
The group manages brands such as Texas Chicken and San Francisco Coffee within its food services division.
It posted a profit after tax of RM50.55mil for the financial year ended Sept 30, 2024 (FY24), from previous losses after tax of RM32.85mil and RM6.39mil in FY23 and FY22 respectively.
Paramount is acquiring Envictus shares at 45 Singapore cents each (about RM1.483), representing a premium of 28.4% to the stock's five-day volume-weighted average price (VWAP) and 46.29% over the six-month VWAP.
Chew described the deal as 'cheap,' pointing out that the group is acquiring Envictus at 4 times its FY24 earnings before interest, taxes, depreciation, and amortisation (ebitda). This, he said, compares favourably with the valuation of 16 times ebitda when Paramount divested its education arm, Sri KDU, back in 2018.
According to him, one of the reasons why Envictus' shares have low liquidity and low interest is because Singaporeans do not really appreciate the business as most of its activities not in Singapore.
Given that it is small, a lot of funds also do not invest in it.
'Hence, we do not really look at the share price with regards to the valuation. The real valuation should be the real cash flow, ebitda and also the actual profits. So far, the valuation is very good,' Chew said.
Chew said that Texas Chicken remains the biggest business within Envictus.
'The jewel is still Texas Chicken at this stage with 100 outlets,' he said, adding that the group plans to open three more outlets this year, with an eventual target of 200 outlets.
In contrast, he said San Francisco Coffee, with 50 outlets at present, is still not profitable.
'It is not a big revenue contributor. It is still making small losses — plus or minus, close to breakeven, but still has not breakeven yet. We think San Francisco Coffee has a chance to become more profitable, but it needs to rejig its business model.
'We need to spend a bit of money on branding and advertisement to rebrand it into a quick lunch destination rather than just a coffee place. Hopefully, with the Paramount brand behind it, we can create a stronger network effect for San Francisco Coffee by bringing them to all our sales gallery launches etc,' Chew said.
Chew said Paramount does not intend to let Envictus run independently in this acquisition unlike the company's acquisition last year in EWI Capital Bhd, as the former is a relatively smaller family-run business.
While acknowledging the group's improved performance, with a RM50mil profit after tax in FY24 compared to losses in earlier years, he said Paramount plans to take an active role in strengthening the business.
'They have had challenges prior to FY24. Part of it was because they were ramping up their revenue; building outlets after the pandemic. However, they also need to improve with regards to management.
'We intend to help them to leverage on a much lower cost of financing over time so that they will be able to borrow more as their returns are quite high. Hence, if Envictus can leverage at a cheaper rate, it will boost the shareholders' return,' Chew said.
Chew said Paramount will be seeking two board seats in Envictus and plans to chair some of the committees to provide strategic oversight.
'In areas like corporate governance and also strategy planning, we are much better because we are an institution led by professional management. We also have a very experienced board of directors which will help to control and build the business,' he said.
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