Pan United Corporation

UOBKayhian on 31 Oct 2012

Valuation

·          Based on Bloomberg’s consensus estimate (two brokers), Pan United Corporation (PUC) has a 12-month target price of S$0.75 with a forecast net profit of S$36.1m for 2012. The stock is trading at 10.5x 2012F PE with a dividend yield of 5.2%.

·          PUC has a share buyback mandate and had accumulated more than 8.0m shares from the open market.

Investment Highlights

·          PUC has three key businesses, namely Basic Building Resources (BBR), Port and Logistics, and Shipping (tugboats and barges). BBR makes up about 74% of total EBITDA with the rest coming from Port and Logistics. Shipping is barely breaking even at the EBITDA level.

·          PUC is the largest cement supplier and producer of ready-mixed concrete in Singapore with a 33% market share. Concrete is produced by mixing sand, cement, granite, water and other chemicals. Gross margins are about 20% but as PUC owns several granite quarries in Malaysia and Indonesia, it is able to improve margins by 1-2ppt. PUC currently can mine 3.0m tonnes of granite annually. 

·          PUC owns 10 pairs of tugboats and barges, a reduction from 14 pairs previously. The barges carry cargoes such as gymsum, coal, aggregates and sand within Southeast Asia. However, the segment made a loss of S$5.0m in 2011 due to depressed freight rates from an oversupply of barges, competitive bulk carrier rates and a repercussion of Indonesia’s cabotage shipping law. The company targets to break even in this year.

·          PUC has a 51.3% stake in Changshu Xinghua Port, located on the southern bank of the Yangtze River. It has 1 sq km of land area and 1.7 km of waterfront with 8 berths. Facilities include 12 cranes, 14 warehouses and more than 600,000sqm of yard storage space. 

Our View

·          PUC is one of the beneficiaries of the construction boom in Singapore. Construction demand in 2012-15 is projected at S$19b-27b annually, according to the Building and Construction Authority. We think this is likely to increase following the announcement of the Thomson Line MRT project and the increase in public housing construction inSingapore. Management revealed that within a MRT tender package of S$200m-300m, 8-10% of the cost would be for concrete. PUC had supplied 85% of the Downtown Line concrete requirement. 

·          Net profit jumped 52.0% yoy to S$22.7m in 1H12, driven by the BBR division and a one-off disposal gain of S$2.2m from the sale of three pairs of tugboats and barges. The BBR division had achieved higher sales volume arising from increased demand.