An expected recovery in the construction industry for 2021 has prompted PhillipCapital analyst Tan Jie Hui to initiate “buy” on Pan-United Corporation with a target price of 40 cents.

On the back of a disruption in the industry, which caused demand to drop 36% y-o-y in 2020 to $21.3 billion, the Building and Construction Authority (BCA) predicts that demand in 2021 will recover to between $23 billion and $28 billion.

“Ready-mixed concrete (RMC) volumes rebounded from almost 100% below their 10-year average at the start of 2020 to 14% below as at December 2020. The recovery was spearheaded by public residential and civil engineering projects,” writes Tan in a March 29 report, who expects Pan-United to benefit, as it is the market leader with a 40% share in the past five to six years.


SEE:Pan-United 2Q earnings surge to $6.7 mil on lower costs


The group’s vertical integration through cement silos via United Cement and Raffles Cement provides supply-chain resilience, while limited silo facilities in Singapore and costly batching plants ensure high barriers to entry. This means the group, apart from the existing dominant players in the market, will face less competition.

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As Pan-United owns or manages virtually all the components and processes across the RMC value chain – from innovation to production, to delivery to customers, it means the group is able to deliver large volumes of RMC efficiently and on time. This is done with the aid of its business innovations, AiR and goTruck!.

AiR is a RMC management platform while goTruck! is a truck hailing platform for the construction industry.

“We believe continued innovations and digitalisation will sustain its competitive edge over peers,” writes Tan.

On this, Tan sees that AiR has the potential to gain traction in the RMC industry in the longer term, which is currently technologically disconnected.

In December 2019, South Korea’s largest RMC company, Eugene Corporation, signed a memorandum of understanding (MOU) with Pan-United to assess its AiR platform for the potential digitalisation of its own end-to-end operations.

The platform uses AI, data analytics, algorithms and sensor technologies to optimise vertical operations along the entire value chain.

“We are looking at a timeline of one year for Eugene to reach a decision on adoption,” writes Tan. “Pan-United is also in talks with other regional players for AiR’s prospective commercialisation.”

Pan-United Corporation is the largest provider of ready-mixed concrete in Singapore, with a growing footprint in Vietnam, Malaysia and Indonesia. The group was listed on the Mainboard of the SGX in 1993.

The group has two main business lines: concrete and cement, which contributed 95% of revenue in FY2020, and trading and shipping, which contributed 5% to its FY2020 revenue.


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Pan-United’s target price, says Tan, is based on the group's historical 10-year average of 7.8 times FY2021 EV/EBITDA, excluding outliers in FY2012 and FY2017.

“Pan-United is trading at -1 standard deviation of its 10-year mean of 8.26 times. Our target price implies a total potential return of 38.6%, inclusive of dividend yields of 3.0%,” she says.

Shares in Pan-United closed 2.5 cents higher or 8.5% up at 32 cents on March 29.