Pan United Corporation - SAC Capital 2022-08-10: Sector Prospect Unchanged


Pan United Corporation - Sector Prospect Unchanged

  • Pan United (SGX:P52)'s 1H22 results are in line with our expectations. Revenue of S$338m and net profit of S$13m are 46%/44% of our estimates. Revenue rose 22% y-o-y on the back of sector recovery and a steeper climb in ready mixed concrete ASP by ~18% (Jun 22: S$118/m3 vs Jun 21: S$99.70/m3).
  • Net profit grew 94% y-o-y due to higher gross margin of 22.6% (FY21: 21.6%) and share of profits from associates (S$3.6m, +168% y-o-y).
  • Associate’ profits are derived from the sale of coal from PT Lanna Harita Indonesia. Profits have jumped as a result of higher ASP as the mine is already producing at its optimal capacity. Coal price of US$393.50/tonne is up 164% y-o-y and is expected to sustain at this high level given that coal is used as an alternative to natural gas to address global energy supply crunch issue. Thus, we expect contribution from its associate to maintain and even increase when coal prices continues to climb.
  • The pace of recovery in construction activities in 1H has lagged as the sector is negatively impacted by stop work orders due to safety issues, COVID and dengue cases at construction sites. These problems are likely to abate as contractors take on preventive measures to ensure that they can carry on with their construction activities.
  • The industry is also held back by lower worker productivity. Although new workers are brought in continuously, they are unskilled and are unable to immediately replace those skilled workers that left. New workers take at least ~1 year to train. Thus, this issue is likely to persist going into 2H and gradually improves as the new workers gain skills. Return of skilled workers will help to raise overall productivity as well.
  • We remain positive about the sector prospect as construction demand remains robust. Changi Airport T5 project has resumed and contracts for the infrastructure are waiting to be announced. HDB plans to launch 23,000 BTO flats each in 2022 and 2023, a 35% increase from 2021’s units.
  • See

Maintain BUY on Pan United

  • Maintain BUY recommendation on Pan United with an unchanged target price of $0.53, still pegged to pre-pandemic FY19 P/E ratio of 12.3x. Our forecasts remains unchanged.
  • Pan United continues to maintain a net cash position of S$5.7m as at 30 Jun 22.

Lim Shu Rong SAC Capital Research | https://www.saccapital.com.sg/ 2022-08-10
SGX Stock Analyst Report BUY MAINTAIN BUY 0.530 SAME 0.530