Pan-United Corporation - Phillip Securities 2021-08-06: Concrete Recovery


Pan-United Corporation - Concrete Recovery

  • Pan United (SGX:P52)'s 1H21 revenue met expectations, but NPAT beat. Revenue and NPAT at 49%/65% of FY21e estimates, attributable to lower financing costs and higher associate contributions.
  • RMC volumes rose as construction resumed, particularly in the public sector. Gross margins improved. Pan United’s batching plants still have capacity to take on a 10-15% increase in RMC demand in Singapore.
  • Maintain BUY rating on Pan United with higher target price of S$0.44, from S$0.40. Our target price remains based on 7.8x FY21e EV/EBITDA, historical 10-year average excluding FY12 and FY17 outliers. FY21e EBITDA raised by 11.1% to reflect better-than-expected gross margins and associate contributions. Catalysts expected from higher contract volumes and better margins.

Pan-United's 1H21 Earnings - The Positives

Strong recovery in concrete and cement revenue; higher associate contributions.

  • Pan United's group revenue increased 45% y-o-y in 1H21, led by a 50% y-o-y increase in concrete and cement revenue. Ready-mixed concrete (RMC) sales volumes rose, as construction resumed in Singapore from a low base in 1H20 during the circuit breaker.
  • According to the Building and Construction Authority (BCA), RMC prices rose 3.6% y-o-y on the back of higher raw-material prices. Gross margins edged up y-o-y from 21.1% in 1H20 to 22.1%. This came from improved cost efficiencies, which we believe are sustainable. Contributions from associates spiked 319% as PT. Lanna Harita Indonesia benefited from higher coal prices. Pan United owns a 10% equity stake.

Lower gearing; S$0.005 dividend declared.

  • Backed by net operating cashflows of S$24mn, Pan United repaid S$22.9mn to its banks. This reduced its net gearing from 0.18x to 0.14x. Interest expenses accordingly dropped by S$0.9mn. It also declared a DPS of 0.5ct for 1H21, a generous 50.5% payout as it is above its dividend policy to distribute at least 30% of its annual PATMI. This signals business confidence, in our view.

Pan-United's 1H21 Earnings - The Negative

Lower trading volume, manpower shortages and supply-chain disruptions.

  • Trading revenue dropped y-o-y due to an absence of coal trading in 1H21. Following lockdowns in neighbouring countries, there was a nationwide manpower shortage in Singapore. Pan United also faced disruptions in raw-material supplies and had to search for alternatives. Supplies from new sources require lead times of a month for BCA testing before they can be imported. This hampered its ability to fulfil contracts. Staff costs and contract volumes may be affected in 2H21 should the lockdowns be extended.


  • Contracted projects are still ongoing, spearheaded by public-sector BTOs. BCA has maintained its projection of S$23-28bn for total construction demand in Singapore in 2021. From 2022 to 2025, demand is projected to reach S$25-32bn a year. Pan United’s batching plants still have capacity to take on a 10-15% increase in RMC demand in Singapore.

Maintain BUY rating on Pan-United with a higher target price of S$0.44, from S$0.40.

Tan Jie Hui Phillip Securities Research | https://www.stocksbnb.com/ 2021-08-06
SGX Stock Analyst Report BUY MAINTAIN BUY 0.44 UP 0.400