Pan-United Corporation - DBS Research 2015-11-12: Awaiting projects to take off

Pan-United Corporation - DBS Research 2015-11-12: Awaiting projects to take off PAN-UNITED CORPORATION LTD P52.SI 

Pan-United Corporation - Awaiting projects to take off 

Expect stock to trade range bound. 

  • We believe that downside for the stock is protected by its 6.5% dividend yield, but upside will be limited due to its lacklustre earnings outlook as a result of weak margins from the ready-mixed concrete (RMC) business and higher interest costs. 
  • There is a civil construction project pipeline, but the pace of construction is not rapid. 
  • Private project developments are slow and we believe the rollout of government related projects will remain at best steady. 
  • Labour and restructuring challenges continue to persist. Our neutral stance for Pan-United Corp (Pan-United) is also backed by a muted GDP growth outlook of 1.8%/2.1% for 2015/2016. 

Dividend yield of 6.5% supports share price. 

  • Management declares DPS based on what it believes is sustainable, currently at 4.3 Scts. PAN’s current dividend yield of 6.5% provides downside protection. 

Pace of construction has been slow this year. 

  • Construction GDP growth has been unexciting at -1.6 to 2% this year. Nonetheless, key infrastructure projects in Singapore include Thomson Line, DTL3, Changi Airport T4 and HDB building/upgrading, which should provide support to PanUnited’s RMC business. 


SOTP valuation methodology. 

  • Our target price of S$0.61 is derived from a sum-of-parts valuation of Pan-United. 
  • We value its ready-mixed concrete (RMC) business based on 10x forward PE at S$0.35, CXP port operations at S$0.29 based on 15x forward port earnings, and CCIP port at S$0.14 based on 1x book, and Shipping business, net debt and others at -S$0.23 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 more upside to its share price.

Alfie Yeo DBS Vickers | http://www.dbsvickers.com/ 2015-11-12
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.61 Down 0.68