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

Pan-United Corporation - DBS Research 2016-03-02: Slower RMC outlook PAN-UNITED CORPORATION LTD P52.SI 

Pan-United Corporation - Slower RMC outlook 

  • FY15/4Q15 earnings below on lower margins 
  • Cut FY16F/FY17F earnings by 31-36% 
  • Dividend yield of 6.1% to support share price 
  • Maintain HOLD, TP S$0.57 

 Expect stock to trade range bound. 

  • 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. 

 Lower than expected margins led to FY15/4Q15 earnings disappointment. 

  • 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 demand to slow this year. 

  • 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. 

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/ 2016-03-02
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.57 Down 0.61