Pan-United Corporation Ltd. – Concrete recovery August 6, 2021 552

PSR Recommendation: BUY Status: Maintained
Target Price: 0.440
  • 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. PanU’s batching plants still have capacity to take on a 10-15% increase in RMC demand in Singapore.
  • Maintain BUY with higher target price of S$0.44, from S$0.40. Our TP 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.

The Positives

+ Strong recovery in concrete and cement revenue; higher associate contributions. Group revenue increased 45% YoY in 1H21, led by a 50% YoY 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% YoY on the back of higher raw-material prices. Gross margins edged up YoY 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. PanU owns a 10% equity stake.


+ Lower gearing; 0.5ct DPS declared. Backed by net operating cashflows of S$24mn, PanU 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.


The Negative

– Lower trading volume, manpower shortages and supply-chain disruptions. Trading revenue dropped YoY due to an absence of coal trading in 1H21. Following lockdowns in neighbouring countries, there was a nationwide manpower shortage in Singapore. 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. 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. 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 S$0.44, from S$0.40. Gross margins have been raised from 19% to 21.5% to reflect better cost efficiencies. Coupled with higher associate contributions, FY21e EBITDA rises by 11.1%. Still set at 7.8x FY21e EV/EBITDA, our TP climbs to S$0.44. Stock catalysts are expected from higher contract volumes and better margins.

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