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CGS International increases Pan-United’s TP to 69 cents with 1Q2024 Singapore RMC demand remaining strong

Douglas Toh
Douglas Toh • 3 min read
CGS International increases Pan-United’s TP to 69 cents with 1Q2024 Singapore RMC demand remaining strong
Singapore's RMC demand has started off on a healthy note this year. Photo The Edge Singapore
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CGS International analysts Kenneth Tan and Ong Khang Chuen are keeping their “add” call on Pan-United Corporation as they see it benefitting from the “healthy” demand for ready mixed concrete (RMC) in Singapore and Malaysia.

The construction upcycle in Singapore, in particular, is a plus for the company given its market leadership in the RMC space.

Referring to statistics from the Building and Construction Authority (BCA), the analysts note that RMC demand in the 1Q2024 rose by 10% y-o-y, coming in around 2% above 2019 levels.

“We believe large infrastructure contracts should be a key driver of RMC demand over FY2024 to FY2026,” write the analysts in their June 11 report.

Tan and Ong also highlight that while contracts for the first two phases of the Cross Island MRT Line have “mostly been awarded” as at end May, contracts for phase three remain up for grabs.

They continue “We estimate phase one and two contracts awarded amounted to around $13 billion, while phase three contracts could be $5 billion.”

See also: CGSI lifts Yangzijiang Shipbuilding’s TP to $2.50 on higher margin expectations

Furthermore, infrastructure works for Changi Airport’s Terminal 5 have also begun, with the first major construction tender launched in March.

Notably, Tan and Ong like Pan-United for its “promising” environmental, social and governance (ESG) potential, as “about half” the company's concrete products are low-carbon products designed to reduce carbon emissions. 

“We see scope for accelerated green concrete adoption in the coming years, premised on developers working to achieve Singapore’s ambitious 2030 targets, and a ramp-up in large infrastructure projects (higher green concrete adoption from government-led projects),” write the analysts.

See also: Maybank initiates ‘hold’ on SIA with TP of $7.10 on the back of ‘peakish’ earnings post-pandemic

They add: “Amid the nation-wide push to achieve net zero emissions by 2050, we think Pan-United stands out among our coverage as a small cap proxy riding on ESG tailwinds.”

On its Malaysia operations, Tan and Ong note that the company has “a robust construction outlook ahead”, backed by large infrastructure and industrial projects. 

Since entering the country in 2015, Pan-United has worked on several large infrastructure projects, and the analysts  “see potential” for a ramp-up in project awards as government projects are rolled out in the coming quarters.

“While we estimate revenue from Malaysia is still low at around 5% of revenue, clinching of large contracts could spur a higher contribution over the next two to three years, in our view,” write Tan and Ong.

With RMC demand in Singapore looking “strong”, the analysts have increased their earnings per share (EPS) estimates for the FY2024 to FY2026 by 3% to 8% as they see stronger revenue growth and improved operating leverage.

As a result, their target price is lifted to 69 cents from 64 cents previously.

The analysts also like Pan-United for its “decent” 6.1% yield for FY2024. Their new target price is still based on 5.8 times Pan-United’s FY2025 enterprise value (EV)/ earnings before interest depreciation and amortisation (ebitda).

Re-rating catalysts noted by Tan and Ong include large projects awarded and sustained margin expansion, while downside risks include credit risks and weak construction demand due to an economic slowdown. 

As at 12.08 pm, shares in Pan-United are trading one cent higher or 2.17% up at 47 cents.

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