Pan-United Corporation - DBS Research 2016-09-29: Positive from Port but BBM a drag

Pan-United Corporation - DBS Vickers 2016-09-29: Positive from Port but BBM a drag PAN-UNITED CORPORATION LTD P52.SI

Pan-United Corporation - Positive from Port but BBM a drag

  • Port delivers stable earnings and has helped to cushion decline in BBR business.
  • Positive on Port business with growth drivers intact.
  • Raise earnings by 4% on more optimistic port earnings.
  • Upgrade to HOLD, SOTP-based TP raised to S$0.56.



Upgrade to HOLD. 

  • We upgrade our recommendation from FULLY VALUED to HOLD. 
  • Post visit to Pan-United’s port, we turn slightly more positive on overall earnings supported by better Port business. 
  • While Basic Building Materials (BBM) has declined, the port was able to mitigate and support group earnings. 
  • We do not see further dividend cuts as we have already factored in a DPS decline that should well account for lower earnings and capex requirement. 
  • We raise earnings for the port on better volumes and utilisation which results in a 1-5% earnings increase. 
  • Our SOTP-based TP is raised to S$0.56, representing an -3% downside including dividends. Upgrade to HOLD as downside is less pessimistic than before.


Port continues to grow, mitigating decline in BBM business. 

  • Our visit to Pan-United’s port validated that growth drivers are intact. Growth has been driven by improving volumes and strong port utilisation, led by its ability to secure new accounts and cargo. The port is consistently looking to value add with ancillary services such as bonded warehousing, transshipment and port-to-door delivery. Growth is expected to be driven by new project equipment cargo and uplift from ancillary services.
  • We expect the port to mitigate impact of BBM business, which has seen a continued ready-mixed concrete (RMC) price decline of 16% y-o-y for the months of July and August 2016.


Valuation


SOTP valuation methodology. 

  • Our target price of S$0.56 is derived from a sum-of-parts valuation of Pan-United. 
  • On a per share basis, we value its RMC business at 10x forward PE (rolling over from FY16F to FY17F) at S$0.15, CXP port operations at S$0.53 based on 15x forward port earnings, CCIP port at S$0.14 based on 1x book, and Shipping business, net debt and others at -S$0.26 per share.


Key Risks to Our View

  • Pan-United’s outlook is based on steady construction activities backed by civil projects in Singapore. Acceleration in private projects may cause a surge in construction demand, leading to better earnings outlook and upside to its share price.




Alfie Yeo DBS Vickers | http://www.dbsvickers.com/ 2016-09-29
DBS Vickers SGX Stock Analyst Report HOLD Upgrade FULLY VALUED 0.56 Up 0.530



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