Pan-United Corporation - Phillip Securities 2021-03-29: Concrete Leader & Innovator; Initiate Coverage With BUY


Pan-United Corporation - Concrete Leader & Innovator; Initiate Coverage With BUY

  • Pan-United is the largest provider of ready-mixed concrete in Singapore. A recovery in construction demand by as much as 31% in 2021e is expected to boost its revenue for the next two years.
  • Barriers to entry include limited silo availability, costly batching plants, vertical integration, efficient delivery system and a major market share.
  • Initiate coverage on Pan-United with BUY and target price of S$0.40, based on 7.8x FY21e EV/EBITDA, its 10-year average (excluding outliers in FY12 and FY17).


  • Listed on the mainboard of the SGX in 1993, Pan-United Corporation (SGX:P52) is the largest provider of ready-mixed concrete (RMC) and cement in Singapore, with a growing footprint in Vietnam, Malaysia and Indonesia. Pan-United commands about 40% of Singapore’s RMC production industry. Singapore generated 70% of its FY19 revenue.
  • Pan-United has two main business lines: concrete and cement (C&C) and trading and shipping (T&S).
    • Contributing the most to Pan-United’s revenue is C&C (95% of FY20 revenue). This division supplies cement, granite, RMC and refined petroleum products to the construction industries in Singapore, Vietnam, Malaysia and Indonesia.
    • T&S involves coal trading, bulk shipping and agency operations.
  • Pan-United's FY18-20 gross margins ranged from 13% to 21%, after raw materials, subcontracting and other direct costs. FY20 was an abnormal year due to COVID-19. The largest cost item, at 78% of Pan-United’s FY20 revenue, is 'raw materials, subcontract costs and other direct costs'. Raw materials include cement which Pan-United imports mainly from its strategic partners, Itochu and UBE in Japan. The manufacturers have a 51% interest in Raffles Cement, which is 49% owned by Pan-United (see Appendix II in report attached below). The rest of its materials are imported from Southeast Asia. Fine-aggregate sand is largely imported from PT Pacific Granitama, its 49% subsidiary in Indonesia. Cement typically comprises 40% of raw-material costs.


  • Commonly used for construction, RMC is the most commercially attractive construction material on account of its compressive strength. It is the most widely used construction material in the world. It is a composite mixture comprising cement, sand, aggregates and water. Upon hydration, RMC forms a hardened mass. As a rule of thumb, RMC products should reach customers within two hours of batching.
  • Apart from producing more than 300 concrete solutions, Pan-United optimises its processes and delivery of RMC products to customers through business innovations such as its Artificial Intelligence for Ready-Mixed Concrete (AiR) and goTruck!
    • The first-of-its-kind in the industry, Artificial Intelligence for Ready-Mixed Concrete (AiR) is a scalable software-as-a-service that can be plugged into RMC companies’ user operations to optimise operations in their supply chain: from replenishing raw materials, managing customer orders and deploying capacity at batching plants right up to quality-control checks and e-billing. Benefits include streamlining day-to-day operations, improving productivity, reducing manpower wastage and substantial cost-savings.
    • Launched in 2019, goTruck! is a B2B truck hailing and fleet management platform for the construction industry. goTruck! connects construction companies and material suppliers with transporters in a seamless digital flow, by matching the supply and demand of heavy vehicles transporting bulk materials. This end-to-end platform for the construction-material ecosystem sand, stone, cement, slag, etc is designed to close the transportation supply-demand visibility gap and minimise vehicle idleness.


2021 construction recovery expected.

  • Construction demand in 2020 was down 36% y-o-y to S$21.3bn as COVID-19 delayed large-scale infrastructure projects such as Changi Airport’s Terminal 5. Recovery kicked in recently following Singapore’s economic reopening in June 2020. RMC volumes rebounded from almost 100% below their 10-year average at the start of 2020 to 14% below as at December 2020.
  • BCA expects construction demand to recover to S$23-28bn this year. The revival will be spearheaded by public residential and civil engineering projects such as new HDB flats and the Jurong Region and Cross Island MRT Lines.
  • We are expecting Pan-United to profit from this, given its roughly 40% market share in the past 5- 6 years. This is attributable to Pan-United’s unrelenting innovations to improve its products, capabilities and efficiencies.

Vertical integration provides supply chain resilience; barriers to entry include limited silos and costly batching plants.

  • Raw materials for RMC comprise cement, aggregates and slag. Pan-United achieves vertical integration through cement silos via United Cement and Raffles Cement, its slag producer at Meridian Maplestar and its aggregate quarry at PT Pacific Granitama.
  • Raw materials - mainly cement - are mostly imported from its strategic business partners, Itochu and UBE in Japan. These manufacturers have a 51% interest in Raffles Cement, which is 49% owned by Pan-United (see Appendix II in report attached below). The rest is imported from various countries across Southeast Asia. As silo facilities are limited in Singapore due to its land scarcity and batching plants grow increasingly costly due to the need for environmental compliance, we believe these present considerable barriers to entry to the RMC industry, apart from having dominant players in the market.

Sustaining competitive edge through downstream innovations.

  • Pan-United owns or manages virtually all the components and processes across the RMC value chain, from innovation and the production of RMC to delivery to customers. It manages the entire value chain – from orders to deliveries – from a single digital platform round-the-clock, seven days a week, through its Command Centre. An Innovation Centre has also been set up for R&D on RMC. This centre is believed to be the only independent private laboratory in Singapore to be Singlas-accredited and equipped to ISO standards. As of date, the Innovation Centre has produced over 300 highly-specialised concrete solutions, often in collaboration with Pan-United’s customers.
  • Pan-United’s innovative AiR ensures quality control during the production of RMC, which has a 2-hour lifespan.
    • Artificial Intelligence for Ready-Mixed Concrete (AiR) optimises Pan-United’s supply chain, by managing the efficiency of its batching plants and ensuring a seamless relay of trucks to deliver the concrete. This resulted in cost savings, while elevating Pan-United’s service standards given that customers can receive real-time information on truck movements.
  • In addition, although Pan-United does not own a single truck, it has the fleet to transport raw materials and RMC products to its batching plants and construction sites. This is attributable to its goTruck! platform launched in 2019.
    • goTruck! matches the supply of heavy vehicles with demand and has gone beyond serving Pan-United’s needs to serving almost 40% of the Singapore’s tipper truck market for sand and aggregates. Raw materials carried by goTruck!-activated trucks exceed a million tonnes a month. This platform enables Pan-United to stay asset-light.
  • Backed by its innovations in different areas, we believe Pan-United is equipped to become a one-stop shop for all RMC logistical needs across the value chain. Its business innovations are key to delivering large volumes of RMC efficiently, on time and of consistent quality. We believe Pan-United’s digitalised operations give it a critical competitive edge over peers.

Potential for AiR’s commercialisation.

  • In December 2019, South Korea’s largest RMC company, Eugene Corporation, signed an MOU with Pan-United to assess the latter’s AiR platform for the potential digitalisation of its own end-to-end operations. The platform uses AI, data analytics, algorithms and sensor technologies to optimise vertical operations along the entire value chain. Pan-United is also in talks with other regional players for AiR’s prospective commercialisation.
  • In the longer term, Pan-United is looking at developing AiR into the main user optimisation digital system for established RMC players outside the region. In our view, this first-of-its-kind, plug-and-play SaaS platform for the RMC industry has the potential to gain good traction, given that this industry is largely technologically disconnected.


  • BCA predicts that total construction demand in 2021 will recover to S$23-28bn. Public-sector projects are expected to contribute 65% to the demand, led by public housing and infrastructure projects. Upcoming public-sector projects for award this year include the Jurong Region MRT Line, Cross Island MRT Line Phase 1 and Deep Tunnel Sewerage System Phase 2. Private-sector construction demand is projected to be S$8-10bn in 2021. The bulk is expected to comprise the development of the remaining en-bloc residential sites, major retrofitting of commercial developments and construction of high-specification industrial buildings. Total nominal construction output this year is projected to increase to S$24-27bn, from an estimated S$19.5bn in 2020. This will be supported by better construction demand in 2021 and backlog projects from 2020.
  • In the medium term, BCA expects steady improvements in construction demand. Demand is projected to reach S$25-32bn a year from 2022 to 2025. The public sector is expected to take the lead and contribute S$14-18bn a year, both from building projects and civil-engineering work.
  • Apart from public residential developments, there will also be large infrastructure and institutional projects. These include Phases 2 and 3 of the Cross Island MRT Line, the Downtown’s line extension to Sungei Kadut and cycling path networks.
  • Private-sector construction demand is also expected to improve steadily to S$11-14bn a year. This is on the back of a gradual recovery in the global economy, contingent on successful COVID-19 vaccination.
  • Further ahead, as part of the Urban Development Authority’s 2019 master plan to develop Singapore over the next 10-15 years, there are several urban transformation projects that could potentially support construction demand. These include the development of the Greater Southern Waterfront to improve accessibility and urban living and the conversion of the Paya Lebar Airbase and its surrounding areas into a livable and sustainable new town. We believe Pan-United will benefit from the URA’s longer-term plans to improve connectivity and rejuvenate living areas in Singapore.


Prefabricated prefinished volumetric construction (PPVC) to compete with RMC.

  • A possible substitute for RMC, PPVC is a construction method whereby concrete blocks are pre-moulded in an off-site fabrication facility before they are delivered and installed on-site. According to BCA, the cost premium of concrete PPVC over conventional reinforced concrete construction is estimated to be less than 8%. With an increasing number of suppliers, the cost premium is expected to shrink further. This premium can be further offset by the other benefits of PPVC, including earlier delivery, fewer transportation trips and a safer workplace. But as of date, this mode of construction cannot be applied to every civil-engineering project due to size constraints and transportation difficulties.
  • A precast concrete plant is very costly as well, due to its sophisticated machinery. According to BCA, PPVC demand in FY21 is expected to total 0.9-1.1mn cubic metres, while RMC demand remains high at 9.5-11mn cubic metres.


  • Renewed lockdowns may cripple the recovery in construction demand. Supply-chain disruptions may affect Pan-United’s operations. Rising raw-material costs and/or a decline in RMC prices may compress Pan-United’s gross margins.


Tan Jie Hui Phillip Securities Research | https://www.stocksbnb.com/ 2021-03-29
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