PETALING JAYA : Paramount Corp Bhd’s acquisition of a 66% stake in REAL Education Group for RM183 million could be part of the management’s bigger plan to list its education division over the medium- term, according to RHB Research.
“CEO Jeffrey Chew mentioned that the company re-named its education arm as Paramount Education Group, so that it can carry more education brands.
“Hence, by doing so, we believe the larger asset and earnings base of the education division would enhance its valuations and size upon listing in future,” RHB said in a report yesterday.
The research house likes the acquisition, given its reasonable valuations and the potential synergies that REAL can bring in.
“We also do not rule out the possibility that the acquisition could be part of management’s plan to monetise the education business over the medium-term. The CEO also indicated that the asset-light strategy for the education division remains unchanged.
Thus, we still expect some education campuses to be disposed of in the coming quarters,” said RHB.
At a price tag of RM183 million, RHB said the deal values REAL Education Group at 18.9 times FY16 earnings, which is rather reasonable, as some education/education-related stocks such as SEG International Bhd and Sasbadi Holdings Bhd are currently trading at 39 times and 26 times its price/earnings, respectively.
RHB expects REAL’s net profit to grow 8%-10% per year over the next two years, which is slightly more conservative than management’s guidance of “double-digit growth”.
“We expect Paramount to be re-rated as its earnings contribution from the education division, which is more sustainable in nature, would be more significant after its acquisition of REAL.”
It said the strategic acquisitions and disposals would support investors’ interest in the stock. It maintained a “buy” call on Paramount with a target price of RM2.24 (48% upside).