Tuesday, February 25, 2014

Pan-United Corp - Building on its success (CIMB)

Pan-United Corp -
Current S$0.92
Target S$1.18
Building on its success

PAN is expanding its port capacity by acquiring its neighbour’s capacity. We lower our FY14-15 EPS to account for financial costs, though our residual-income target price rises by 4.5% on future contributions from its expanded port business. We retain our Add rating, with potential catalysts from contributions from its BBR segment and improved earnings from its enlarged CXP operations.

What Happened
Through its 85.5%-owned CXP, PAN is making a 90% acquisition of a multi-purpose port, Changshu Changjiang International Port (CCIP), in Changshu, China for Rmb436.5m.

What We Think
Transaction can’t move the dial for now. This transaction will have little impact on its immediate earnings given the port’s initial gestation. Though EBITDA-accretive, we reckon that the port will take another 18 months before contributing to earnings. The real impact for now will be equity-accounted financial costs.

But strategic for the longer run. Still, this should be an opportunistic acquisition for PAN, in keeping with its larger vision of increasing cargo for its port and logistics businesses. Medium term, we think that operational synergies from a next-door port have economic value and can serve to enlarge PAN’s foreign-sourced income a few years later.

By acquiring the port, PAN can save a fair bit of development costs, from sourcing for land for its own port upsizing. And given its healthy free cash flows (BBM’s and CXP’s businesses are stable), we believe it can absorb such acquisitions for future growth.

Raising shareholders’ value by optimising its capital structure. The purchase of CCIP will be done at CXP’s level. Assuming half-funding by debt, we estimate that PAN’s net gearing will only climb to 0.34x in FY14, before drifting down in FY15, which suggests that its dividend commitment will not be affected. A longer-term plan could even be a spin-off of its port business through a listing, in our view.

What You Should Do
Stay invested. PAN’s 4QFY13 results due next week have the potential to surprise positively, given better performance of CXP.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 19/02/14

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