Pan United Corporation - Phillip Securities 2022-03-14: FY21 Results Above Our Expectations On Construction Recovery


Pan United Corporation - FY21 Results Above Our Expectations On Construction Recovery

  • Pan United (SGX:P52)'s 2H21 revenue and profit beat expectations, at 60.7% and 76.2% of FY21e estimates respectively. The beat was driven by higher sales from its concrete and cement business which recovered faster on the back of the faster pace of recovery in the construction sector.
  • Net gearing was 22% lower than our forecasts; Pan United's FY21 dividend S$0.006 higher than our expectations. Full-year 2021 dividend at S$0.016 per share, represented a 60% payout, signalling confidence in the near-and mid-term outlook.
  • Manpower shortages, supply-chain disruptions and volatile freight costs continue to hamper growth recovery. We tweaked our gross profit margin expectations lower for FY22e/FY23e in anticipation of higher raw materials cost and supply-chain disruptions.
  • Maintain BUY call on Pan United with higher target price of S$0.46, from S$0.44. We raise FY22e earnings forecast for Pan United by 11% on account of the higher demand for ready-mixed concrete brought about by the construction recovery. Our target price is based on 16x FY22e P/E, a 15% discount to its 10-year historical average P/E on account of the still uncertain environment.

The Positives

2H21 revenue and profit above, driven by recovery in concrete and cement segment; higher associate contributions.

  • Pan United's group revenue increased 45% y-o-y in 2H21, growing at the same pace as 1H21 as the recovery of construction activities in Singapore continued to drive growth.
  • According to the Building and Construction Authority (BCA), ready-mixed concrete (RMC) demand rose 52.7% in 2H21 and 59.4% for full-year 2021. RMC sales volumes rose, and is now at pre-COVID levels. Contributions from its associate, PT. Lanna Harita Indonesia in which it owns a 10% stake, also rose on the back of higher coal prices .

Net gearing 22% lower than our forecasts; FY21 DPS 0.6 cents higher than our expectations.

  • Backed by net operating cashflows of S$33mil in 2H21, Pan United repaid S$17.7mil in loans to lower its overall net gearing from 0.14x to a net cash position of $17mil. Interest expenses accordingly dropped by 38% y-o-y.
  • Pan United also declared a final dividend of S$0.011 per sare for FY21, bringing full-year 2021 dividend to S$0.016 per share, representing a payout of 60%, above its dividend policy to distribute at least 30% of its annual PATMI. This, in our view, signals Pan United’s confidence in its near-and mid-term outlook.

The Negative

Manpower shortages, supply-chain disruptions and volatile freight costs.

  • Gross profit margin was slightly weaker y-o-y as raw materials price rose at a faster pace than average selling price. Dec-21 average selling prices are 9% higher y-o-y at S$104/cu m and 7% higher vs the same period in 2019.
  • Given the strong demand for construction materials in the region, we do not think prices would moderate in the near-term. 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.
  • We tweaked our gross profit margin expectations lower for FY22e/FY23e in anticipation of higher raw materials cost from supply-chain disruptions.


BCA upgrades forecasts of construction demand for 2022.

  • The BCA has upgraded its forecasts of construction demand for 2022 to $27bn-32bn per year from the original $25bn-32bn per year, comparable with the preliminary $30bn in 2021. The BCA also projects that demand for building materials will increase in tandem with the increased construction demand. Steel rebar demand is forecasted to grow to 1mil-1.2mil tonnes in 2022, representing ~22% y-o-y increase.
  • We note that BCA’s forecasts for average construction demand in 2022 -2025 excludes the development of Changi Airport Terminal 5 and expansion of the two integrated resorts. As our forecasts have not included these projects, there is upside if they go live.
  • In the near term, projects in the pipeline that will likely support the group’s growth are the Singapore Science Centre’s relocation, the Toa Payoh integrated development, Alexandra Hospital redevelopment, Bedok’s new integrated hospital, Phases 2 -3 of the Cross Island MRT Line and the Downtown Line’s extension to Sungei Kadut.
  • With an approximately 40% market share in the industry, we continue to see Pan United as a key beneficiary of the construction sector recovery. Pan United’s batching plants still have capacity to take on a 10-15% increase in RMC demand in Singapore.

Maintain BUY with a higher target price of $0.46, from $0.44.

Tan Jie Hui Phillip Securities Research | https://www.stocksbnb.com/ 2022-03-14
SGX Stock Analyst Report BUY MAINTAIN BUY 0.46 UP 0.440