PhillipCapital analyst Terence Chua has kept his “buy” recommendation on Pan-United Corporation as the company’s earnings for the FY2021 ended December stood above expectations.
On the back of the higher earnings, Chua has also upped his earnings estimates for the FY2022 by 11%.
“[This is] on account of the higher demand for ready-mixed concrete brought about by the construction recovery,” Chua writes in his March 14 report.
“Our target price is based on 16x FY2022 P/E, a 15% discount to its 10-year historical average P/E on account of the still uncertain environment,” he adds.
On Feb 22, Pan-United Corporation reported revenue of $310,288 for the 2HFY2021 and earnings of $11.73 million for the same period.
The half-year earnings surged 15.5 times compared to earnings of $759,000 in the corresponding period the year before.
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According to Chua, Pan-United’s 2HFY2021 revenue and profit beat his expectations at 60.7% and 76.2% of his FY2021 estimates respectively, thanks to the higher sales from its concrete and cement business, which recovered faster on the back of the faster pace of recovery in the construction sector.
Other positives include the lower-than-expected net gearing, which stood 22% lower than Chua’s forecasts, as well as the higher-than-expected FY2021 distribution per share (DPS) of 1.6 cents.
However, Chua has lowered his gross profit margins (GPM) lower for the FY2022 and FY2023 in anticipation of higher raw materials cost from supply-chain disruptions.
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In its FY2021 results, the company reported a slightly weaker GPM as prices for raw materials rose at a faster pace than average selling prices (ASPs).
“Given the strong demand for construction materials in the region, we do not think prices would moderate in the near-term,” says Chua.
“Pan-United also faced disruptions in raw-material supplies and had to search for alternatives. Supplies from new sources require lead times of a month for BCA testing before they can be imported. This hampered its ability to fulfil contracts,” he adds.
Looking ahead, Chua notes that the Building and Construction Authority (BCA) has upgraded its forecast for the demand for construction in 2022, which he sees as an upside for the company.
“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 says.
“Stock catalysts are expected from higher contract volumes and better margins,” he adds.
Shares in Pan-United closed 1.5 cents higher or 4.48% up at 35 cents on March 16, or an FY2022 P/B of 1.06x and a dividend yield of 4.1%.
Photo: Pan-United
