Tuesday, August 20, 2013

Pan – United : “Pan – ning” for growth (Voyage)

Pan – United
“Pan – ning” for growth
 Intrinsic Value S$0.965
 Prev Closing S$0.865
“Pan – ning” for growth

 Pan – United Corporation Ltd (Pan United) released its 2Q FY13 results with a 5% YoY increase in revenue to S$190m and a 20% YoY decline in PATMI to S$12m. The increase in revenue was mainly due to the steady growth in the Basic Building Resources (BBR) division. The decline in PATMI was due to a S$2.2m one off provision for doubtful debts on one of its customers: Alpine Bau GmbH, and the absence of a S$2.2m gain on disposal of vessels, property, plant and equipment which occurred in 2Q FY12. Without these, the company’s 2Q FY13 PATMI would have been S$14.2m vs 2Q FY12 PATMI of S$12.9m.

Going forward, the company has proposed to acquire Macquarie International Infrastructure Fund’s (MIIF) 34.2% stake in the Changshu Xinghua Port (CXP) for S$100.4m and plans to increase its warehousing space over the next few years. We view these actions favorably as it would provide stable cashflow and increase attributable profit from the port and logistics segments. The company has declared an interim dividend of S$0.015 per share. Adjust recommendation to Invest at S$0.965.

Results Summary:
One off provision of S$2.2m for Alpine Bau GmbH: Pan United supplied Alpine Bau with ready-made cement for the construction of the Downtown Line 2 project. However, Alpine Bau filed for insolvency in June 2013. Hence, Pan United has set aside S$2.2m as provisions for bad debt on trade receivables. This represents 80% of the debt outstanding by Alpine Bau. This provision is likely to be one-off.

Acquiring MIIF’s 34.2% stake in CXP for S$100m: The agreement to purchase MIIF’s 34.2% stake in CXP for S$100m will increase Pan United’s effective stake to 85.5%. The purchase price is approximately 20X P/E based on the port’s profits in 2012 minus relevant interest expenses. This move will grant Pan United with greater control over the port’s capital structure and future development plans. The acquisition is expected to be funded with an equal mix of internal funds and bank borrowings.
Business Update: The BBR division continues to perform on the back of strong demand from the construction sector. In addition, the existing quarries are on track to be aggregated to increase production.

The port and logistics division saw improved performance in 1H FY13 due to higher volume of pulp and paper handled. In addition, management plans to double warehousing space from the existing 100,000 sqm over the next few years. This is in line with expectations of higher cargo handling volume. The rental rate of the warehousing space may also improve.

Performance for the shipping division remains flat despite the 86% utilization rate as the company has difficulty filling up the “return cargo”. That said, we expect this division to remain at breakeven level for the next two quarters.

The purchase of MIIF’s 34.2% stake in CXP for S$100m would allow the company to exercise greater control over the capital structure and development of CXP. As one of the top 10 river ports in China, the port is a hub for pulp and paper cargoes. Hence, CXP would serve as an additional port of growth for the company in the coming years. The acquisition which is pending shareholders’ approval is expected to be funded with 50% internal funding and 50% bank borrowings. Hence, the expected gearing ratio is expected to rise from 0.2 to 0.3.

Forecasts and Valuation: We have revised our forecasts slightly upwards after taking into account the growth prospects for the company in terms of its BBR division, and the ports and logistics division. The volume of building materials sold should continue to increase in line with the high activity level in the construction sector. The expansion of the warehousing space should also contribute positively in FY14/15 in the form of cargo handling income or rental income. Adjust recommendation to Invest with an intrinsic value of S$0.965.

Source/Extract/Excerpts/来源/转贴/摘录: Voyage-Research
Publish date: 16/08/13

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