Pan-United Corporation - DBS Research 2016-08-15: Earnings remain weak

PAN-UNITED CORPORATION LTD P52.SI

Pan-United Corporation - Earnings remain weak

We maintain our negative stance on the stock with S$0.53 TP. As expected, interim dividend per share (DPS) has been cut to 1 Sct from 1.5 Scts last year.
Although the stock yields 5.3%, we believe the risk-reward profile is now less favourable than before. Soft earnings outlook going forward could put further pressure on DPS and dividend yield.
We remain cautious on earnings growth outlook. As such, we stay pessimistic until earnings and the ability to sustain DPS show signs of turning around.

Revenue declined by 14% y-o-y to S$178m while earnings fell 23% y-o-y to S$5.3m. The revenue decline was largely led by lower demand and selling prices for RMC in the Basic Building Materials (BBM) segment. Volumes in the Port segment remained steady, but Shipping segment was hit by lower utilisation, weak demand and net losses.
Costs were better controlled with EBIT margins improving 2.9ppt sequentially from 1Q16 to 6.7%. However, it still lags 2Q15’s 6.9%.
We have reduced our FY16-17F earnings by 7- 8% to reflect lower 2Q16 numbers for FY16F.

SOTP valuation methodology. Our target price of S$0.53 is derived from a sum-of-parts valuation of Pan-United.
On a per share basis, we value its RMC business at 10x forward PE (rolling over from FY16F to FY17F) at S$0.15, CXP port operations at S$0.51 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$0.25 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 upside to its share price.

Alfie Yeo DBS Vickers | http://www.dbsvickers.com/ 2016-08-15

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