PhillipCapital analyst Terence Chua has lowered his earnings estimates for Pan-United Corporation for the FY2022 and FY2023 by 12% and 11% respectively on account of the Heightened Safety period imposed by the Ministry of Manpower (MOM) from Sept 1 to Feb 28, 2023.
The group’s FY ends in December.
To Chua, the measures by the MOM mean that local construction projects are progressing slower than expected in general. Year-to-date (ytd), the number of contracts awarded is down by 9.4% y-o-y. The number of contracts awarded slowed down in the 3QFY2022 as workplace fatalities hampered project progression rates, Chua notes.
Furthermore, the analyst says that the prospects of the local construction sector are expected to be weighed down by higher operating costs, particularly for skilled labour and energy.
“The operating climate is likely to be complicated and burdened by high financing cost and heightened credit risks on the back of an inflationary and rising interest rates environment,” he adds, even though he still sees the industry’s tailwinds as intact.
“Despite the near-term headwinds, we believe the construction recovery remains intact. HDB has announced that it will ramp up the supply of new build-to-order (BTO) flats over the next two years to meet the strong housing demand from Singaporeans,” Chua writes.
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“It plans to launch up to 23,000 flats per year in 2022 and 2023, which represents a significant increase of 35% from the 17,000 flats launched in 2021. Changi Airport’s Terminal 5 project will resume after being put on hold for two years due to the Covid-19 pandemic,” he adds.
In addition, the Building and Construction Authority (BCA)’s forecasts of the average construction demand over 2022 to 2026 of $25 billion to $32 billion will support the demand for construction in the coming years, Chua points out.
“In the near term, projects in the pipeline that will likely support the group’s growth are the Singapore Science Centre’s relocation, the Toa Payoh integrated development, Alexandra Hospital redevelopment, Bedok’s new integrated hospital, Phases Two-Three of the Cross Island MRT Line and the Downtown Line’s extension to Sungei Kadut,” he says.
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In his report dated Dec 12, Chua is maintaining his “buy” call on Pan-United Corporation with an unchanged target price of 54 cents.
“With an approximately 40% market share in the industry, we continue to see Pan-United as a key beneficiary of the construction sector recovery. Pan-United’s batching plants still have capacity to take on a 10%-15% increase in ready-mix concrete (RMC) demand in Singapore,” he says.
Shares in Pan-United closed 0.5 cent higher or 1.25% up at 40.5 cents on Dec 13.