Friday, July 26, 2013

Pan United: Singapore’s Largest Cement And RMC Supplier (UOBKH)

Pan United
Share Price S$0.895
Target Price S$1.25
Singapore’s Largest Cement And RMC Supplier
Valuation/Recommendation
• Initiate coverage with a BUY and a SOTP-based target price of S$1.25. As the largest supplier of cement and RMC in Singapore, we believe Pan United (PUC) will be one of the largest beneficiaries of the local construction boom. We like the company for its market leader position in the industry, steady recurring income from one of China’s top 10 ports and its strong balance sheet. Our target price has an implied 2014F PE of 13.8x, which is within its historical PE range of 4.5-16.9x since 2003.


Investment Highlights
• Industry market leader. PUC has about 28% share in the cement market and 33% in the RMC market. An established track record, several milestone projects, timely delivery and guaranteed quality RMC make PUC the preferred supplier for contractors. PUC currently supplies RMC for the construction of the CCL and the DTL.

• Port division a steady cash generator. Changshu Xinghua Port Co Ltd (CXP) is ranked as one of the top 10 river ports in China. CXP is a leading hub for steel, logs and pulp & paper cargo, handling about 16% of China’s pulp imports. PUC generates a steady profit of S$6.4m-8.8m from its 51.3% stake in CXP. In 2012, CXP enjoyed a high utilisation rate of 75-80%. Based on Macquarie International Infrastructure Fund’s (MIIF) DCF valuation of its 38% interest in CXP, PUC’s 51.3% interest is worth S$143m, which represents a premium of S$102m (S$0.18/share) over its port segmental equity as at 31 Mar 13.

• Strong balance sheet. Valuation is underpinned by a strong net cash of 10 cents/share. Coupled with strong earnings growth and free cash flow, PUC has maintained its dividend payout of at least 3 cents. In our view, the strong financial position allows the company to significantly increase leverage to engage in strategic acquisitions or to expand when the opportunity arises.

• Key risks include: a) the reliance on Singapore’s construction industry, b) a slowdown in China, c) reliance on the associate’s coal trading business

Valuation
• Initiate coverage with a BUY and target price of S$1.25, implying a 39.7% upside from current price. We derive our target price using sum-of-the-parts valuation to account for the various business segments.

• BBR segment. Based on BBR’s 2014 earnings forecast and regional peers’ 2014F PE average of 16.3x, we value PUC’s BBR stake at S$1.28/share.

• Shipping and other business segments. As PUC’s shipping and other business segments are in a turnaround phrase, we adopt the P/B method and value the respective business segments at S$0.09/share and S$0.14/share.

• Port segment. Using MIIF’s DCF valuation of CXP as at 31 Mar 13, we derived a pro-rated valuation of S$0.26/share for PUC’s 51.3% interest in CXP.

Investment Highlights
• Industry market leader. The positive outlook for the construction industry is likely to bode well for the basic building resources industry. Being Singapore’s largest cement and RMC supplier with a market share of 28%, PUC has an established track record in several milestone projects. The timely delivery and guaranteed quality RMC makes PUC the preferred supplier for contractors. PUC is a significant RMC supplier to both the CCL and the DTL.

• Port division a steady cash generator. CXP is ranked as one of the top 10 river ports in China. CXP is strategically located on the southern bank of Yangtze River. It is a leading hub for steel, logs and pulp & paper cargo, handling about 16% of China’s pulp imports.

Since ramping up its utilisation rate in 2009, PUC has been generating a steady profit of S$6.4m-S$8.8m (net of minority interests) from CXP. In 2012, CXP enjoyed a high utilisation rate of 75-80%.

Based on MIIF’s DCF valuation of its 38% interest in the port, CXP had an intrinsic value of S$280m as at 31 Mar 13. Accordingly, PUC’s 51% interest in CXP is worth S$143m, which represents a premium of S$102m (or S$0.18/share) over its port segmental equity as at 31 Mar 13.

In 2012, CXP’s net profit attributable to PUC translated to an attractive yield of 5.3%, based on the derived fair value of PUC’s 51.3% stake of S$143m

• Strong balance sheet. Valuation is also underpinned by a strong net cash of 10 cents/share (or 11.1% of market cap). Coupled with strong earnings growth and free cash flow, PUC has maintained its dividend payout of at least 3 cents. In our view, the low gearing and strong financial position allow the company to significantly increase leverage to engage in strategic acquisitions or to expand when the opportunity arises.



Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date:25/07/13

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