Pan-United Corp Ltd - CIMB Research 2016-10-03: A trip to Pan-United’s ports in Changshu

Pan-United Corp Ltd - CIMB Research 2016-10-03: A trip to Pan-United’s ports in Changshu PAN-UNITED CORPORATION LTD P52.SI

Pan-United Corp Ltd - A trip to Pan-United’s ports in Changshu

  • We visited Pan-U’s two ports (CXP, CCIP) in the Changshu City of Jiangsu, China.
  • The ports are poised to benefit from the economic growth of Yangtze River Delta.
  • Management remains focused on realising synergies from its acquisition of CCIP and is in the process of refinancing debt related to the acquisition.
  • Pan-U’s core businesses- basic building resources, shipping- remain challenging.
  • Pan-U currently trades at 1.22x FY16 P/BV (based on Bloomberg consensus forecasts), broadly in line with its historical average 1-year forward P/BV of 1.31x.


Visit to Pan-U’s two ports in Changshu 

  • We visited Pan-U’s Changshu Xinghua Port (CXP) and Changshu Changjiang International Port (CCIP) in Changshu, Jiangsu province, China. Sited next to each other, the ports are two of the few private majority-owned ports in China and collectively form one of the ten busiest river ports in China. On our trip, we met Pan-U’s port management team and gathered that the port conditions are satisfactory.


Poised to ride on the economic growth of Yangtze River Delta 

  • Strategically located on the southern bank of the Yangtze River, CXP and CCIP serve the high-growth industrial cities of Suzhou, Wuxi and Changshu. Their hinterland covers the Yangtze River Delta, one of the wealthiest economic regions of China, which contributed c.20% of China GDP and one-third of China’s imports and exports. 
  • The ports have a diversified cargo mix, with steel, pulp & paper, logs and containers as four key categories. Management is developing project equipment cargo as the fifth category.


Realising synergies from acquisition of CXP 

  • As a relatively young port (operations began in Nov 2012). CCIP was loss-making when it was acquired by Pan-U in Mar 2014. Thanks to CCIP’s close proximity to CXP, Pan-U was able to realise significant operational and commercial synergies by optimising port resources and CCIP turned around within one-year from date of acquisition, according to management. CCIP’s utilisation rate improved from 29% in FY13 to 68% in 1HFY16.


Relatively high gearing not a concern for management 

  • The acquisition of CCIP was financed by internal cash and debt financing activities of the port division (the Singapore holding company did not have to provide any debt guarantee). 
  • Pan-U’s net gearing of 87% at end-2Q16 (vs. 16% at end-FY13 prior to the acquisition of CCIP) is not a concern for management, as the ports enjoy favourable credit ratings with local Chinese banks. Management is currently refinancing the Rmb770m debt related to the port business, potentially for lower interest cost.


Basic building resources (BBR) and shipping remain challenging 

  • Apart from the largely stable port business, the outlook for the group’s BBR and shipping businesses remains challenging, according to management disclosure in the 2Q16 financial report. 
  • Group net profit fell 38% yoy to S$7.3m in 1H16 on the back of lower margins for BBR due to stiff competition and the loss-making shipping business that is plagued by low freight rates, soft market demand and oversupply in vessel capacity.


Valuation 

  • Pan-U currently trades at 1.22x FY16 P/BV (based on Bloomberg consensus estimates), broadly in line with its historical 1-year forward P/BV of 1.31x.




Roy CHEN CFA CIMB Research | William TNG CFA CIMB Research | http://research.itradecimb.com/ 2016-10-03
CIMB Research SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998



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