In Singapore’s concrete sector, the demand for construction materials has evolved significantly, with a rising interest in low-carbon concrete. This shift is fuelled by heightened awareness of climate change, sustainability, and regulatory initiatives like the Singapore Green Building Masterplan, says Pan-United Corp CEO May Ng.
The Singapore Green Building Masterplan seeks to transform at least 80% of Singapore’s buildings into green structures (by gross floor area or GFA) by 2030. The government also aims to achieve net-zero emissions by 2050.
Pan-United itself has pledged — and is on track — to offer only low-carbon concrete by 2030. It also aims to offer carbon-neutral concrete products by 2040 and become a carbon-neutral ready-mix concrete company by 2050.
“Sustainability has become a hot topic. Over the past few years, we have observed an encouraging surge in interest and demand for low-carbon concrete. More developers, consultants, architects and engineers have been requesting specifically for low-carbon and carbon dioxide mineralised concrete,” says Ng.
“We currently have multiple projects utilising our Pan-United carbon dioxide mineralised concrete and low-carbon concrete, such as the ongoing Rapid Transit System (RTS) Link, North-South Corridor, Tuas Port Phase 1 and Cross Island Line,” she adds. “We expect increasing demand for low-carbon concrete as this is one of the best ways for developers to reduce embodied carbon and significantly lower the whole life carbon emissions for their projects.”
As it is, more project owners are now integrating Whole Life Carbon Assessments (WLCA) at the planning stage. The WLCA calculates the carbon dioxide — operational and embodied — that will be emitted throughout the building’s lifespan.
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“Operational carbon comprises carbon dioxide emissions from the use or operation of a building, mainly from lighting and air-conditioning,” Ng explains. She adds that this can be mitigated over the building’s lifetime through the use of and upgrades to more energy-efficient cooling and lighting systems.
On the other hand, embodied carbon refers to the emissions that stem from manufacturing and using building materials such as concrete and steel during the construction stage, says Ng. “Such emissions are irreversible and cannot be mitigated once the built asset is completed.”
According to the Singapore Green Building Council, embodied carbon accounts for up to 40% of emissions from a typical building in Singapore.
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Ensuring the greening of buildings does not just lie in the hands of the builders and raw material providers. Financiers are equally vital as they can seek meaningful reductions before providing green financing for projects, says Ng. Furthermore, as Singapore’s carbon tax is expected to increase significantly in the coming years, progressive owners are also planning to reduce their carbon dioxide emissions to lower their future carbon tax liability, she adds.
Investment and innovation
Pan-United has explored several ways to invest in and develop its product with the expected surge in demand for low-carbon concrete.
The company currently produces carbon dioxide mineralised concrete using Carbon Capture and Utilisation (CCU) technology that embeds the gas in concrete.
“We are adapting technologies to optimise mix designs and reduce wastage of precious resources used in concrete production,” says Ng, adding that being cost-effective is a “given”. She did not elaborate on how much the company has spent on its investments to develop its carbon-effective concrete.
While the company’s low-carbon concrete currently costs slightly more than traditional concrete, Ng says that the difference is “insignificant” and notes that the positive impact from the lower emissions is “compelling”. Furthermore, as the company achieves economies of scale, costs will normalise, she adds.
Digitalisation is another of Pan-United’s key strategies, along with streamlining processes through the Internet of Things (IoT) and new technologies and materials to mitigate other costs.
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The company has progressively digitalised its operations and customer engagement systems since 2014. Developed in-house, the AiR Digital system has optimised production capacity and doubled productivity in Pan-United’s operations. Customer engagement has increased as well, says Ng.
Pan-United is also looking to transform its business model by offering specialised solutions to other regional cement and concrete companies.
Ng describes it as “our asset-light strategy to grow new revenue streams that can generate returns for us”. The transformation to rely less on manpower and more on machines, automation processes and digitalisation “will take time”.
Pan-United has been doing its part in going green in other ways. On Jan 11, the company, together with Chevron Singapore, Keppel, Surbana Jurong, Air Liquide Singapore, Osaka Gas Singapore, and Pavilion Energy, signed an MOU to collaborate on lower carbon opportunities to support Singapore’s aspiration of achieving net-zero emissions by 20501.
The Low Carbon Technology Industry Consortium (LCT-IC), as this group is called, agrees to explore ways to undertake better carbon capture, utilisation and sequestration (CCUS) as well as the production, transportation, distribution and utilisation of lower carbon hydrogen and its derivatives at scale, and in a more cost-efficient manner. The MOU signed on Jan 11 is an extension of a previous MOU signed in July 2020, of which Pan-United was already a signatory.
BCA raises forecast
Meanwhile, Pan-United is seen to be a major beneficiary of growing construction demand here in Singapore. For its 1HFY2023 ended June 2023, Pan-United reported revenue of $360.2 million, up 7% y-o-y, thanks to a higher volume sold. Earnings in the same period were up 18% y-o-y at $15.9 million.
“Although Singapore’s construction industry continues to face ongoing labour shortages, high construction and financing costs, the construction activity is expected to remain healthy for the remaining 2023,” said Pan-United in its earnings commentary dated Aug 10, 2023, citing the Building and Construction Authority’s (BCA) then-forecast of total construction demand to range between $27 billion and $32 billion for 2023.
In its most recent forecast on Jan 15, BCA said the total construction demand for this year, measured by contracts awarded, is seen to reach between $32 billion and $38 billion. This is the highest level since 2014, helping the industry put behind the woes during the pandemic, plus some.
As usual, total demand comes from private developments such as the multi-billion expansion of the two integrated resorts, continued roll-out of infrastructure development such as the Cross Island MRT Line, as well as public housing, write CGS-CIMB Research’s Ong Khang Chuen and Kenneth Tan in their Jan 15 note.
Up to 2028, BCA expects construction demand to remain elevated at $31 billion to $38 billion, higher than the $29.8 billion average seen from 2009 to 2023.
BCA’s latest forecast is raised from its estimated $25 billion to $32 billion last year. The additional contract value added to the latest forecast includes contributions from the two integrated resorts and the inclusion of Changi Airport Terminal 5, whose construction, like other major infrastructure works, was delayed because of the pandemic.
“We believe BCA’s latest projections reinforce our view of continued strength in Singapore’s construction activities ahead, which could benefit all three building material companies under our coverage,” state Ong and Tan, referring to BRC Asia BEC , Hong Leong Asia H22 , and Pan-United.
“Our channel checks indicate that industry order books currently remain around 9% above pre-Covid levels as of end-Dec 23, presenting healthy near-term revenue visibility for building material players as contractors continue to execute on their backlog while orders are being replenished, in our view,” they add, as they reiterate their “overweight” call on the sector.
For Pan-United, they maintain their “add” call and 55 cents target price, pegged to just 5.8 times calendar year 2024’s EV/Ebitda, the average from 2012 to 2014. “Healthy construction activities in Singapore should accord healthy ready-mix concrete (RMC) sales volume growth ahead for Pan-United Corp,” add Ong and Tan.
PhillipCapital analyst Peggy Mak is similarly upbeat on this stock, raising her earnings estimates for the FY2023 ended Dec 31, 2023, by 36% to $34 million to account for the wider gross margins. “RMC volume is expected to rise further in 2HFY2023, while prices are expected to stay firm,” Mak writes in her latest report dated Aug 14, 2023.
Pan-United’s earnings for the 1HFY2023, which came in at $15.9 million, stood above Mak’s expectations at 63% of her full-year estimates. The higher-than-expected earnings were attributed to the company’s widening gross margins of 21.3% on an improved product mix.
“Construction activities picked up from May 2023, and Pan-United’s volume in 1HFY2023 caught up to level that of 1HFY2022,” she says.
“The company expects volume to rise in 2HFY2023, with buoyant demand from public and private housing developments and infrastructure projects,” she adds.
Furthermore, Mak believes that the higher gross margin is sustainable due to a higher mix of products offering low-carbon solutions to Pan-United’s customers and higher fees from batching services that the company offers to HDB construction work.
Pan-United shares closed at $0.38 on Jan 31.
