Pan-United Corporation Ltd. – Construction recovery gaining pace

According to data from the Building and Construction Authority, demand for ready-mixed concrete for the first three months of 2022 was 5% higher than the same period in 2021 (Figure 1). The construction recovery remains on track with progress payments billed for 2021 32.5% higher than 2020 (Figure 2). Contracts awarded for the first three months of 2022 was also 33.2% higher than 2021.


The price of RMC has also risen by 8.4% from Dec 2021 to April 2022 (Figure 3) driven by a combination of higher raw materials costs and demand. The higher cost of its components like sand, freight and bunker fuel cost have all driven up the price of RMC. For instance, the average daily charter hire of the Supramax and Handysize has risen from an average US$28,650 per day in 2021 to US$31,350 today.


The Positives

+ Construction recovery ahead of our expectations; we upgrade forecast of total RMC volume to 13.5mn m3 for 2022 vs. 12.8mn previously. With the construction sector recovering at a faster pace in the first quarter of the year than we expected, we upgrade our forecast of total RMC volume for the year. We expect construction demand to remain robust for the next few years, supported by strong demand for public housing and the backlog of projects from Covid-19 delays. BCA has forecasted annual construction demand of $25-32bn from FY23-26 and these forecast do not include the resumption of Changi Airport T5.


+ Manpower shortage resolved. With Singapore’s borders gradually reopening, work permit holders have returned to the hardest-hit sectors such as construction and marine shipyard. According to the Ministry of Manpower, work permit holders in these sectors now account for more than 90% of pre-pandemic levels. We expect that the manpower tightness at PanU has now been fully resolved and staffing can be ramped up should the Group require it to meet the rising demand in the next few years.


+ Strong operating results to drive Group into net cash position by 1H22e. With the faster pace of recovery in 1Q22, we have revised upwards our forecast for the Group. We now expect PanU to report free cash flows of ~$14mn for 1H22, which will be used to repay down ~$5mn in loans. We expect this to accelerate the Group’s move into a net cash position by 1H22e.


The Negative

- Supply-chain disruptions and volatile freight costs squeeze margins. With the rapidly rising price of RMC, we continue to watch for receivables risk in the sector. GP margin was slightly weaker for 2H21 as raw materials price rose at a faster pace than the average selling price. Apr-22 ASPs are 8.4% higher vs. Dec-21 at S$113/cu m. PanU 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. With coal prices up 135% YTD, we believe cement prices will remain elevated. We believe the rising cost of RMC is a potential concern, though this is mitigated by the Group’s ability to pass-through these costs to its customer and trade credit insurance.



Construction sector sees faster pace of recovery in 1Q22; expects escalation of activity for rest of 2022. HDB has announced that it will ramp up the supply of new build-to-order (BTO) flats over the next two years to meet the strong housing demand from Singaporeans. It plans to launch up to 23,000 flats per year in 2022 and 2023, which represents a significant increase of 35% from the 17,000 flats launched in 2021. Minister for Transport S Iswaran also recently announced that Changi Airport’s Terminal 5 project will resume after being put on hold for two years due to the Covid-19 pandemic.


BCA’s forecasts of average construction demand over 2022-2026 of $25-32bn will support construction demand in the next few years.


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 PanU as a key beneficiary of the construction sector recovery. PanU’s batching plants still have capacity to take on a 10-15% increase in RMC demand in Singapore.


Maintain BUY with a higher TP of $0.68, from $0.46.

We raise FY22e/FY23e earnings by 35%/26% respectively on account of the higher demand for RMC brought about by the construction recovery. Our TP is raised to $0.68 from S$0.46 based on 12x FY22e P/E, a 20% discount to its 10-year historical P/E on account of the still uncertain business environment. Stock catalysts are expected from higher contract volumes and better margins.

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