KUALA LUMPUR: Paramount Corp Bhd has put its greenfield property projects on the back burner amid weak market conditions, its group chief executive officer (CEO) Jeffrey Chew Sun Teong said, but it will continue to roll out new phases of existing projects.

The property developer will defer the launch of its new projects in Section 13 (Petaling Jaya), Batu Kawan (Penang) and Jalan Goh Hock Huat in Klang (Selangor).

“We are more concerned about new projects. As such, we have decided to hold back on launching new projects, except that in Salak Tinggi, Sepang,” Chew told the digitaledge DAILY in an interview last week.

“For those projects that we have already mobilised [resources], there is no point holding back because it will create a lot of inconveniences,” he said.

The group is planning to launch part of its second township development in the Klang Valley on 237.3 acres (96.03ha) of land in Salak Tinggi by year end, which has an estimated gross development value of up to RM1.2 billion.

“The reason why we are still confident of [rolling out the new project in] Salak Tinggi is because prices of the homes there are set to be affordable. Secondly, it is a landed development and hence, the risk and cash flow requirement are different from that of mixed-use developments,” he explained.

Mixed-use developments have longer gestation periods, Chew said, adding that these could cause cash flow stress and lower profit margins arising from more interest costs.

“We will offer landed homes [in Salak Tinggi] priced at RM500,000 and below. We want to try to target the right segment with the right products. I think we still have a good chance of achieving our budgeted sales [of RM400 million] for the year,” he added.

Nevertheless, Chew said Paramount had the ability to hold back the launch of its greenfield projects as the leverage ratio of its balance sheet was at a low 0.26 times as at June 30. It sits on a cash pile of RM145.38 million.

With fewer projects expected in the launch pipeline, the property developer is still determined to meet its sales target of RM400 million for this year. Year to date, it has achieved new sales of RM278 million.

“We are not targeting a RM4 billion sales turnover, but only RM400 million. In that sense, we are not very big, which is actually quite beautiful,” said Chew.

Still, Chew conceded that property sales had fallen 30% year-on-year in July and August.

“We do see a shift in sentiment. People are holding back spending on big-ticket items, preferring to wait and see,” he said.

Paramount is set to roll out RM200 million worth of new launches this year, out of which RM98 million will come from its existing Paramount Utropolis @ Glenmarie development in Shah Alam, Selangor, while another RM40 million will come from its Salak Tinggi project.

The group posted a marginal drop of 1.3% in net profit to RM37.25 million for the six months ended June 30, 2015 (1HFY15), from RM37.74 million a year ago, due to losses of KDU University College stemming from depreciation charges and interest costs of the new campus in Utropolis, Glenmarie, which opened in January. Revenue for 1HFY15, however, grew 20.8% to RM280.26 million from RM232.02 million in 1HFY14.

Chew said despite market challenges, the group is still confident of doing better this year compared with FY14.

Chew in January warned that this year would be as challenging as 2014, since demand had moderated in the higher-end property market. Although demand in the affordable home segment remains strong, he noted that it is suffering slight impact from stricter financing guidelines.

“It is very difficult to predict whether the current market conditions will persist in the next few months,” he said.

Chew, who formerly served as CEO and a director of OCBC Bank (M) Bhd before taking up his current post, believes it is crucial for the government to initiate policies that will promote more private consumption in the economy, including the property sector.

“If that does not happen, the economy will probably slow down in the fourth quarter, and by the first quarter of next year, we will probably go into a recessionary mode,” he warned.

“If you look at property development alone, it may not be a very big contributor to the country’s gross domestic product, but the supporting and services industries that are linked to property development can be quite huge,” he added.

Paramount (fundamental: 1.4; valuation: 2.6) shares closed up three sen or 2.03% to RM1.51 last Friday, with a market capitalisation of RM637.62 million.

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This article first appeared in digitaledge Daily, on September 1, 2015.