Pan-United Corporation - DBS Research 2016-05-12: Less favourable risk reward profile

Pan-United Corporation - DBS Research 2016-05-12: Less favourable risk reward profile PAN-UNITED CORPORATION LTD P52.SI 

Pan-United Corporation - Less favourable risk reward profile

  • 1Q16 earnings disappoints on lower RMC price and shipping losses
  • RMC downturn is structural, await construction market to pick up
  • Slash FY16-17F earnings by 15-16%
  • Downgrade to FULLY VALUED with lower TP of S$0.49

Expect stock to drift lower. 

  • We expect Pan-United to trade lower as we believe weakness in RMC (ready-mixed concrete) prices will lead to a drop in profitability and earnings going forward. 
  • Besides, we anticipate that lower earnings from slower RMC demand will result in dividend cuts over the next few quarters. As such, we are taking a negative stance on less favourable risk-reward profile.

Slowing construction sector will lead to weaker earnings for Pan-United. 

  • Overall market demand for RMC fell by 18% y-o-y in 1Q16, while RMC prices have dropped by 7-10%. This is largely a result of weak construction demand and competition among RMC players in Singapore, which is structural in nature. 
  • Recovery will likely take time given that foreign labour tightening measures continue to be in force and the pace of construction activities will moderate due to manpower constrains. As such, we expect Pan-United to post lower sales, margins, earnings and DPS in FY16.


  • SOTP valuation methodology. Our target price of S$0.49 is derived from a sum-of-parts valuation of Pan-United. We value its RMC business at 10x forward PE at S$0.19, 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$0.27 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 upside to its share price.

Alfie Yeo DBS Vickers | http://www.dbsvickers.com/ 2016-05-12
DBS Vickers SGX Stock Analyst Report FULLY VALUED Downgrade HOLD 0.49 Down 0.57