Singapore seems to be always building. Despite being a small island nation, there are always some major constructions going on to rejuvenate Singapore’s environment. These include government-led public infrastructure projects such as the recently opened Thomson East Coast MRT Line, a slew of future MRT lines including Jurong and Cross Island lines, and the mega Changi Airport Terminal 5 project.
The private sector also chimes in their fair share of construction
projects, led by the expansion and upgrading of both Marina Bay Sands and Resorts
With increasing civil engineering and building works come with
increased demand for construction materials. Concrete is one of the essential
raw materials for constructions.
Would Pan-United Corporation Ltd (SGX: P52) stand to benefit
from the growth in the construction sector?
Pan-United’s refreshed corporate logo
Pan-United Corp claims to be Singapore’s largest provider of ready-mixed
concrete, with a growing footprint in Vietnam, Malaysia and Indonesia. Locally,
it has been involved in some large-scale construction projects. For example,
the company supplied the largest Self Compacting Concrete Pour to Tanjong Pagar
Centre, and lining more than 60km of the underground tunnel of Downtown and
Pan-United is also the top brand for concrete in the fast-growing Ho
Chi Minh City. It secured numerous prestigious projects, including OneHub
Saigon, a 12 hectares business and IT park space jointly developed by
Ascendas-Singbridge and Saigon Bund Capital Partners.
While supplying ready mixed concrete seems like a traditional
business, Pan-United has invested heavily in technology and vertically-integrated
its capabilities in managing processes of sourcing, producing, supplying and
logistics support of ready mixed concrete delivery.
Source: Pan-United corporate website
Pan-United’s Innovation Centre is believed to be the only
independent private laboratory in Singapore to be accredited. Through extensive
Research and Development, it has developed more than 300 highly specialised
concrete solutions. These include the Pan-United Rapid, a concrete that sets
within an hour that can be used for quick recovery of airport taxiways and
aprons; and Pan-United MIC, an anti-bacterial concrete with excellent
resistance to acid corrosion ideal for the deep tunnel sewerage system.
Pan-United operates The Command Centre in-house that re-designs
processes to improve operational efficiency. Customers’ needs are met through a
single digital platform that delivers a seamless process. For example, the
company launched Pan-United Mobile Booking for customers to order and track
concrete deliveries on their mobile devices in 2018,
Pan-United recently posted a decent set of results.
In Q4 2019, its revenue was $169 million, down 20% from 2018.
However, due to lower raw material cost, sub-contract cost and other related
expenses which fell 26%, its net profit was up 167% to $5.4 million.
For Financial Year 2019, Pan-United recorded a revenue of $768
million, an 11% drop. Its profit before tax rose 220% to $21 million.
As of end-2019, Pan-United recorded a
decrease in both current and non-current loans and borrowings. In total, these
debts fell from $126 million in 2018 to $106 million. Against an equity of $210
million, Pan-United has a Debt to Equity ratio of 0.50.
In fact, it is worth noting that the
company’s Debt to Equity ratio has been generally trending down from about 1.1
just 3 years ago.
Pan-United past 6 years’ Total Debt to Equity Ratio. Source: Shareinvestor.com
Pan-United churned out a net
operating cash flow of $42.6 million in 2019. Should we look at the historical
trend, the company’s cash flow generation ability has been healthy, with cash
amount hovered between $25 million to $53 million.
The sharp drop in 2018 figure is
attributed to a large decrease in ‘Payables, accruals and provisions’ which
entails that the company paid off much of its payables and accruals that year. Unfortunately,
I could not find more information related to this.
Pan-United past 6 years’ Net Operating Cash
Flow. Source: Shareinvestor.com
The management decided to share the fruits of its improved earnings
with shareholders, by declaring a final dividend of 1.1 cents per share. The
total dividend for 2019 would thus be 1.6 cents, up from 0.8 cents in 2018.
Pan-United past 6 years’ Dividend per Share. Source: Shareinvestor.com
Pan-United’s dividend trend has been falling from around 4 cents per
share in 2014 to 0.8 cents in 2018. It is clear that the company does not have
a consistent dividend-paying record.
Management commentary on the business prospect. Source: Pan-United 4Q 2019 Earnings Report
As shown, management believes that
Singapore’s total construction demand will remain strong in 2020, bolstered by
a line-up of public sector civil engineering projects. This is almost certain
to lead to increased demand for ready mixed concrete which Pan-United
I am positive on Pan-United’s
prospect. Based on its track record, the company supplied concrete to some of
the iconic construction projects mentioned earlier. A familiarity with public
sector projects, coupled with its advanced technology and research and
development capability should enable Pan-United to capture a large market
Furthermore, its regional
operations should see growth too. Vietnam’s construction sector is expected to
grow from US$57.5 to US$84 billion in 2023, as its economy picks up to attract
more investment flowing into its public infrastructure, tourism facilities and
housing projects. Pan-United is well-positioned to capitalise on such growth.
Ready-mixed concrete and cement,
while an essential construction material, is a commoditised product. Apart from
specialised cement solutions developed for specific constructions, the majority
of projects require standard supplies. This means that Pan-United would be a
price taker in the industry, charging its customers at the market prevailing
price. Should the price of ready mixed concrete fall, (for example it fell to
$83.30 per cubic metre in Dec 2017) Pan-United’s revenue may suffer.
With a share price of $0.405 as of 19 Feb and Earnings per Share of
2.93 cents, Pan-United is being valued at a Price Earnings Ratio of 13.8 times.
Its dividend yield would be a modest 3.95%.
With an expanding construction
sector underpinning the demand for ready mixed concrete, Pan-United should see
robust revenue growth this year.
Nevertheless, it doesn’t mean all
will be smooth-sailing for Pan-United. Management will need to continue
delivering on its superior product offerings and execute its strategies well to
meet customer demands that are evolving with larger and more complex
Of course, we are still unsure how
will the Covid-19 outbreak affect the broad economy, leading to slower
construction activities. At least in the short term, we can expect some adverse
impact as sounded by management above.
For now, I am satisfied with
including Pan-United into my watch list and closely monitor its performance
CS Jacky is a Remisier and Financial Adviser with Phillip Securities Pte Ltd. Graduated with a Bachelor in Business Administration (Finance), he has been investing in the stock market since 2010. He identifies companies with good prospect trading at a low valuation using a unique blend of fundamental, technical, and portfolio analysis. He also holds REITs and dividend paying shares. He holds regular seminar to share about market updates, investment insights of specific stocks in his watch list, and overall wealth management for retail investors. He is the owner-blogger of 'CS Jacky - 360 Wealth Management' and a guest writer for Value Invest Asia.