PAN UNITED CORPORATION - OCBC Investment 2016-09-26: Stable Port Business Along Yangtze River

PAN-UNITED CORPORATION - OCBC Investment 2016-09-26: Stable Port Business Along Yangtze River PAN-UNITED CORPORATION LTD P52.SI

PAN-UNITED CORPORATION - Stable Port Business Along Yangtze River

  • Established since 1958.
  • Owns two adjacent ports in Changshu.
  • Handles mainly four types of cargoes.

Three core business divisions 

  • Established in 1958, Pan-United Corporation Limited (PUC) has three core business segments: 
    1. Basic Building Resources (BBR) division, 
    2. Port division, and 
    3. Shipping division. 
  • While PUC’s BBR business has more than 30% market share in Singapore as a supplier of ready- mixed concrete (RMC) and cement, its outlook remains challenging amid slowdown in construction activity in Singapore. 
  • For its port business, PUC owns and manages two adjacent ports along the Yangtze River in Changshu, Jiangsu Province, China. Lastly, PUC’s shipping business specialises in the transportation of bulk cargoes (e.g. gypsum, sand and aggregates etc.) in Asia with a fleet of tugboats and barges. 
  • However, due to weak regional demand, its shipping division posted a S$2.2m loss in 1H16 as a result of lower vessel utilisation.

Visited its ports in Changshu 

  • We visited Changshu, China, last week to learn more about PUC’s port business. 
  • PUC’s two multi-purpose ports, Changshu Xinghua Port (CXP) and Changshu Changjiang International Port (CCIP), are located next to each other. PUC first started its port business with CXP and only acquired the smaller CCIP in 2014. As such, PUC holds 95% stake in CXP and in turn, CXP holds 90% stake in CCIP, while the remaining stake are held by Changshu local government. Its ports handle mainly four types of cargoes apart from general cargoes in break bulk: 
    1. steel, 
    2. pulp and paper, 
    3. logs, and 
    4. containers. 
  • PUC’s ports also provide warehousing services to its customers although the ports generate most of their revenue from stevedoring fees. 
  • Over the 10- year period between FY05 and FY15, the ports profit after tax ranged between S$4.6m (FY08) and S$19.4m (FY15).

1H16 earnings fell amid challenging market conditions 

  • In its latest 1H16 results, PATMI fell 38.3% YoY to S$7.3m on the back of a 13.3% decline in revenue, dragged by weaker performance at BBR and shipping divisions. 
  • According to Bloomberg, PUC is currently trading at 22.2x FY16F P/E. 
  • We have NO RATING on this stock.

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2016-09-26
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