Pan-United – Muted FY23e outlook, a stronger FY24e July 5, 2023 586

PSR Recommendation: BUY Status: Maintained
Last Close Price: 0.525 Target Price: 0.5
  • Industry contract awards fell 13.5% in the first four months of 2023. At this rate, total contract awards for 2023 could come in at the lower end of BCA’s forecasts of S$27bn-32bn, and fall below 2022’s S$29.8bn. Lower contract awards will translate into lower construction output and building materials consumption in the following 6 to 12 months.


  • A ramp up in the 2H 2023 government land sale programme will lift total supply of private housing units in 2023 to 9,250, nearly 50% higher than 2022. The development projects are expected to be awarded from early 2024, leading to an uplift in demand for building materials from 2H24e.


  • We lower our FY23e net earnings estimates by 20% to factor in lower volume. Maintain BUY with lower TP of S$0.50 (prev. S$0.54). The business generates strong operating cash flow, underpinning a dividend yield of at least 4.5%.



  • Industry contracts awarded fell 13.5% in first four months of 2023 (Figure 1), after a 0.5% YoY decline in 2022. These contracts would translate into work performed and billed in 2H23e. We therefore expect slower revenue and profit growth in FY23e.


  • Construction companies are turning more cautious in taking on new jobs as they face margin pressure from higher labour, material and safety compliance costs. We think this could have impacted tenders for larger projects with longer construction lead time.


  • Consumption of RMC fell 4.6% in the first three months of 2023 (Figure 2). Selling price has also eased by 1.7% from the peak in June 2022 (Figure 3). Delivery of building materials have been affected by the authority-imposed heightened safety measures at worksites. These measures were lifted from June 2023.


  • The GLS programme will yield about 9,250 private housing units in 2023, nearly 50% higher than 2022, and 2.5x the supply in 2021. The HDB also plans to supply up to 23,000 new Built-To-Order (BTO) flats in 2023 (2022: 23,184 flats). The construction contracts for these projects are expected to be awarded in the subsequent quarter, and translate into construction works over the next two years. We therefore expect an uplift in order delivery for building materials from 2H24e.


  • Increased awareness and adoption of Pan-U’s low-carbon concrete solutions. The push towards sustainability construction has raised adoption of Pau-U’s low-carbon concrete solutions. These include the use of recycled, upcycled and waste materials, as well as carbon capture and utilisation (CCU) technologies such as CO2 mineralisation technology. Pan-U has supplied CO2 mineralised concrete to PSA’s Tuas Port and Capitaland’s building construction at 3 Science Park Drive. Greater industry adoption of these products would set Pan-U apart from its competitors.


  • We lower our FY23e net profit estimates by 20% to factor in lower volume. Revenue and net profit growth in FY23e would be driven mainly by higher selling prices.


Maintain BUY with a lower TP of S$0.50

We maintain BUY with a lower DCF-derived TP of S$0.50 (prev. S$0.54). The operations generate strong FFO/share of S$0.0317 in FY23e, which underpins a dividend yield of at least 4.5%.

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