Analysts from SAC Capital and PhillipCapital are remaining positive on Pan United's prospects after the company reported revenue of $338 million and net profit of $13 million for the 1HFY2022 ended June.
SAC Capital analyst Lim Shu Rong has kept a “buy” rating on Pan United with an unchanged target price of 53 cents, as Pan United's half-year results stood in line with her expectations.
In her report, Lim notes that Pan United's revenue rose 22% y-o-y on the back of sector recovery and a steeper climb in ready mixed concrete average selling price (ASP) by approximately 18%.
Net profit grew 94% y-o-y due to higher gross margin of 22.6% as compared to 21.6% for FY2021 and share of profits from associates at $3.6 million, up 168% y-o-y. Associate’ profits are derived from the sale of coal from PT Lanna Harita Indonesia. “Profits have jumped as a result of higher ASP as the mine is already producing at its optimal capacity,” explains Lim.
“Coal price of US$393.50 ($540)/tonne is up 164% y-o-y and is expected to sustain at this high level given that coal is used as an alternative to natural gas to address global energy supply crunch issue,” says the analyst. “Thus, we expect contributions from its associates to maintain and increase when coal prices continue to climb.”
However, the pace of recovery in construction activities in 1HFY2022 has lagged as the sector is negatively impacted by stop work orders due to safety issues, Covid-19 and dengue cases at construction sites, observes Lim. “These problems are likely to abate as contractors take on preventive measures to ensure that they can carry on with their construction activities,” he adds.
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The analyst also notes how the industry is also held back by lower worker productivity. “Although new workers are brought in continuously, they are unskilled and are unable to immediately replace those skilled workers that left, where new workers take at least around one year to train,” Lim says. “Thus, this issue is likely to persist going into 2HFY2022 and gradually improves as the new workers gain skills.”
Lim adds that the return of skilled workers will help to raise overall productivity as well.
“We remain positive about the sector prospect as construction demand remains robust,” says Lim, considering how Changi Airport’s Terminal Five (T5) project has resumed and contracts for the infrastructure are waiting to be announced. Moreover, the Housing Development Board (HDB) plans to launch 23,000 built-to-order (BTO) flats each in 2022 and 2023, a 35% increase from 2021’s units.
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PhillipCapital analyst Terence Chua has also maintained his "buy" call on Pan United as the company's revenue stood in line with his expectations.
Pan United's profit, however, stood lower, at 34% of his full-year estimates.
Chua has lowered his target price to 54 cents from 68 cents previously on account of the still uncertain business environment. The new target price is based on an FY2022 P/E of 12x, or a 20% discount to Pan United's 10-year historical P/E.
In addition, Chua has lowered his earnings estimates for the FY2022 to FY2023 by 26% and 11% respectively on account of higher staff, utilities and materials costs.
Looking ahead, the analyst expects the construction sector to see a faster pace of recovery in the 1HFY2022, with its tailwinds remaining intact. This includes the ramp-up in the supply of HDB BTO flats in 2022 and 2023, as well as the resumption of the building of Changi Airport's T5 project.
"In the near term, projects in the pipeline that will likely support the group’s growth are the Singapore Science Centre’s relocation, the Toa Payoh integrated development, Alexandra Hospital redevelopment, Bedok’s new integrated hospital, Phases 2-3 of the Cross Island MRT Line and the Downtown Line’s extension to Sungei Kadut," he writes.
"With an approximately 40% market share in the industry, we continue to see Pan United as a key beneficiary of the construction sector recovery. Pan United’s batching plants still have capacity to take on a 10%-15% increase in ready-mixed concrete (RMC) demand in Singapore," he adds.
As at 10.44am, shares in Pan United at trading at 0.5 cents up or 1.12% higher at 45 cents.
