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NRA Capital Pte Ltd

Written by: jinshu

Wednesday 2 Mar 2016

Pan-United Corporation Ltd - 4Q15 results

7.9% yield offsets earnings risk

Pan-United Corporation Limited’s 4Q15 results were on the low side of expectations due to lower than anticipated selling prices in Basic Building Resources. Currently, Pan-United trades at 15x P/E and an attractive 7.9% dividend yield. The 11% drop in share price, from S$0.610 as of 13 November 2015 to S$0.540 as of 1 March 2016, in spite of a 59% quarter-on-quarter fall in net profit supports our view that a substantial portion of the earnings downside has been factored into the share price.


Lower prices dragged net profit lower. Pan-United Corporation Limited’s net profit attributable to shareholders fell by 32% year-on-year to S$2.5m. Profit before tax was actually 27% higher at S$5.4m compared to S$4.3m a year ago. The difference was mainly due to S$1.5m of tax expense in 4Q15 versus S$0.3m of tax credit in 4Q14 arising from the over provision of tax in prior years.

However, the results brought little cheer as 4Q15 net profit was 59% or S$3.5m lower than that of 3Q15, due to lower selling prices and the depreciating Singapore Dollar (against the USD). Raw materials, subcontract costs and other direct costs as a percentage of revenue ticked up by 1.2% points to 80.5% in 4Q15. Cement prices fell from $92.4/t in Sep to $90.8/t (-1.7%) in Dec 2015. Ready Mixed Concrete (Grade 40 Pump) fell from $99.8/m3 to $95.9/m3 (-3.9%) during the same period. Quarter-on-quarter, the USDSGD rate had depreciated by 1.2%.

Our thoughts…  The deterioration in conditions between 3Q15 and 4Q15 was worse than expected. We had earlier expected a slower rate of decline in profitability with the depreciation of the Singapore Dollar slowing to about 8% year-on-year in 4Q15 (compared to 10% in 3Q15). However, we did not anticipate selling prices to fall further. The lower selling prices added pressure to margins, leading net margin to fall from 2.9% in 3Q15 to 1.2% in 4Q15. On the whole, the results with full year reported net profit of S$20.3m were on the low side of expectations of between S$20m and S$25m.


Figure 1: Results Comparison 

Source: Company, NRA Capital


Figure 2: Cement and RMC selling prices fell again in 4Q15 following a brief respite in 2Q15 and 3Q15

Source: Company, NRA Capital


Figure 3: As a result, raw material costs as % of revenue ticked higher

Source: Company, NRA Capital


Reiterate strong franchise of Pan-U in Singapore. In spite of full year revenue coming in at just 8% higher at S$826.9m, the company sold record volumes of RMC (+17%) and cement (+24%) in 2015. As RMC volume in Singapore was only 7% higher, Pan-United’s RMC market share rose to more than 37% compared to 34% in 2014. The Basic Building Resources segment also remained profitable with full year after tax profit of S$12.9m (2014: S$24.2m).

Port division performed well. On the other hand, the port business reported a 19% increase in revenue to S$96.2m. Profit after tax grew by 29% from S$15.0m a year ago to S$19.4m in 2015, mainly due to higher cargo volume across different categories of goods and higher handling capacity.

Updated outlook – Margins likely to stabilize in 2Q16 or 3Q16. We now expect Pan-United’s margins to stabilize only in 2Q16 or 3Q16, given conditions in 1Q 2016. The higher market share places Pan-United in a positive position to grow when headwinds abate. Longer term, the completion of the plant in Malaysia in 1Q17 will help to enhance Pan-United competitiveness in cementitious materials. Some of the output may be sold in Malaysia, depending on costs and prevailing selling prices. We maintain that we continue to like Pan-United for its market leading position and attractive dividend yield. 

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