Share Price S$0.97
Target Price S$1.25
Flat quarter but exciting plans ahead
• Pan United (PUC) is our top pick for investors looking to cash in on the local construction boom. It is Singapore’s largest supplier of cement and ready mixed concrete (RMC), with a market share of about 30%.
• In line with estimates. PUC’s 9MFY13’s net profit of S$32.6m formed 78% of our full-year forecast.
• Flat quarter on the back of a high growth year. Revenue was flat yoy and net profit was up 6% yoy, attributable mainly to lower tax expense. Despite a fall in other income and an increase in finance costs, lower staff and material costs helped to offset the decline in profitability, as 3QFY13 PBT was flat yoy.
• Increased gearing. During 3QFY13, PUC took a bank loan of S$62.0m to finance the acquisition for the additional interest in Changshu Xinghua Port (CXP). As at 30 Sep 13, PUC’s net gearing ratio remained healthy at 25.8%.
• 4Q earnings boost from additional interest in port. As the purchase of the additional interest in CXP was completed only in September, the full impact of the contribution is expected to be evident only in 4QFY13. We expect 4Q earnings to be boosted by S$1.3m (S$0.0024/share) from the additional 34.2% interest acquired.
• Another CXP? Subsequent to the take-up of additional interest in CXP, PUC has started to receive offers from other ports in China, hoping to sell their interests to PUC. Encouraged by the success of CXP and a strong balance sheet, the traditionally prudent management has also expressed interest in the possibility of future M&As to expand their port operations.
• A positive move forward. We are excited at the possible plans for a new port. Given that PUC’s local RMC’s business and port operations in CXP have been stable with a lion share of the market, an acquisition of a new port is timely and may be a new growth driver going forward. With over a decade of operational experience in turning CXP into one of China’s top ten ports, we believe PUC has the talents as well as the resources to create a second CXP. Since 2006, CXP’s EBITDA has grown at a 4.6% CAGR (FY06-12) to S$30.4m in FY12, with a high utilisation rate of 86.4% in 2012.
• Maintain BUY and target price of S$1.25.
Publish date: 14/11/13