Pan-United Corporation - DBS Research 2016-03-02: Slower RMC outlook

PAN-UNITED CORPORATION LTD P52.SI

Pan-United Corporation - Slower RMC outlook

We believe that downside for the stock is protected by its 6.1% dividend yield, and share price decline has factored in weak earnings going forward.
Upside is limited because RMC outlook for 2016 is expected to decline, yet margins are likely to be squeezed due to softness in ready-mixed concrete (RMC) selling prices.
We have factored in a decline in DPS going forward, from 4.3 Scts to 3.3 Scts in view of low-growth outlook and FY15’s earnings decline.
Our neutral stance for Pan-United Corp (Pan-United) is also backed by a lower projected construction output of S$32bn and S$34bn for 2016.

Revenue (4Q15 – S$203m, 1% y-o-y; FY15 – S$827m, 8% y-o-y) was in line, but earnings (4Q15 – S$2.5m, -32% y-o-y; FY15 – S$22m, -33% y-o-y) missed our expectations.
Pan United’s implied RMC selling prices declined by about 6%y-o-y in FY15, which largely led to lower than expected margins in the Basic Building Materials (BBR) segment.

RMC outlook is likely to be slower this year with BCA’s forecasting a slower 13-15m cbm of RMC (a 6% to 19% decline from 2015), on moderation of on-site construction activities.

SOTP valuation methodology. Our target price of S$0.57 is derived from a sum-of-parts valuation of Pan-United.
We value its (RMC) business at 10x forward PE at S$0.21, CXP port operations at S$0.43 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$0.21 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/ 2016-03-02

DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.57 Down 0.61