Pan-United Corporation (PAN SP) - DBS Research 2017-11-13: RMC Business Still Muted

Pan-United Corporation (PAN SP) - DBS Vickers 2017-11-13: RMC Business Still Muted PAN-UNITED CORPORATION LTD P52.SI

Pan-United Corporation (PAN SP) - RMC Business Still Muted

  • Pan-United Corporation's 3Q17 results in line, led by staff cost reduction.
  • Full impact of EPS dilution from FY18F.
  • S$139m or S$0.20 per share capital reduction upon successful listing of Xinghua Port on HKSE.
  • Maintain FULLY VALUED and S$0.51 TP.

What’s New 

3Q17 in line, staff cost declines by 9%. 

  • Pan-United's 3Q17 Revenue of S$171m (-1% y-o-y) and earnings of S$5.6m (-22% y-o-y) were in line with expectations. 
  • While 9M17 demand and selling prices for RMC declined, RMC demand and selling prices in 3Q17 held steady vs 2Q16. Volumes from its port in China also remained stable. Gross and EBIT margins in 3Q17 improved to 14.4% (+0.8ppt y-o-y) and 6.7% (+0.2ppt).
  • The decline in earnings was largely a result of interest cost and other one-off items. EBIT margins increased due to cost reduction led by lower staff costs from the RMC business (S$10m, -9% y-o-y). The slight sequential earnings improvement is within expectations.

Singapore construction remains weak. 

  • Based on BCA statistics, we note that RMC volumes and prices declined at a less severe pace in July and August 2017. In addition, RMC prices are normalising at close to levels 12 months ago. 
  • Singapore’s construction GDP continues to fall, albeit at a slower rate. We have already factored in slight earnings turnaround especially for the RMC segment going forward.

Maintain Fully Valued and S$0.51 TP. 

  • The 1-for-4 rights issue in July increased Pan-United’s share base by 25% to 700m shares. The full impact of EPS dilution will be felt from FY18F. 
  • Pan-United’s capital will be reduced by S$139m (amounting to S$0.20 per share) if the listing of its port on the Hong Kong Stock Exchange is successful. Pan-United shareholders will receive shares in Xinghua Port Holdings via the capital reduction exercise carried at S$139m book value.
  • Based on our SOTP valuation of Pan-United, our TP remains at S$0.51. There is no change to our forecasts. We maintain our negative stance and FULLY VALUED recommendation.

Alfie Yeo DBS Vickers | http://www.dbsvickers.com/ 2017-11-13
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 0.51 Same 0.51