SINGAPORE (Feb 14): DBS Vickers Securities is keeping its “hold” call on Pan United, Singapore’s largest cement and ready-mixed concrete (RMC) supplier, with a target price of 63 cents.
The group last Friday declared earnings of $24.1 million for the full year ended Dec 31, a marginal decrease from its earnings of $24.2 million in the previous financial year.
(See also: Pan United posts $24.1 mil earnings for FY16)
In a Tuesday report, DBS analyst Alfie Yeo notes how the group’s lower sales volumes for the quarter were compensated by better cost control and margins – plus, with the Building and Construction Authority (BCA) forecasting a stronger demand for construction in 2017, the outlook for Singapore’s construction sector is expected to improve.
Despite this, Yeo reckons demand for RMC will remain subdued due to off-site construction processes. These include an increase in pre-fabrication, which will lead to the moderating of on-site building construction processes.
“Selling prices are also on a downtrend, albeit by a slower rate. With [Pan United’s] port in China facing lower handling rates, and hence margin pressure, we do not expect earnings growth to be robust,” he adds.
Overall, the research house believes the outlook is mixed for Pan United due to headwinds in RMC demand, margin pressure at the ports division, and cost pressure due to competition in China – which will mitigate any improvement from the absence of Pan United’s loss-making tugs and barges business, which was privatised by majority shareholders in 4Q16.
“However, the stock supported by an attractive dividend yield of 5.6%. We hence continue to remain neutral on the stock,” says Yeo.
As at 12 noon, shares of Pan United are trading 1.5% lower at 66 cents.
