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

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.

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.

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.

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.

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