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UOBKH starts coverage on Pan-United with ‘buy’ call and TP of 71 cents

Felicia Tan
Felicia Tan • 3 min read
UOBKH starts coverage on Pan-United with ‘buy’ call and TP of 71 cents
Pan-United's batching plant and trucks. Photo: Pan-United
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UOB Kay Hian (UOBKH) analysts Llelleythan Tan and Heidi Mo have initiated a “buy” call on Pan-United Corporation as they see the company being a market leader with concrete growth prospects.

“With an around 40% domestic market share, Pan-United Corporation is a market leader in cement and concrete supply providing a diverse range of concrete types, and boasts an industry-leading position in low-carbon concrete technologies,” note Tan and Mo in their June 19 report.

The company generates its revenue mainly from its concrete and cement segment where it supplies cement, ready-mix concrete (RMC) and other aggregates, which form 98% of its overall topline.

In addition, Pan-United also provides digital solutions for construction companies, which earns it higher-quality recurring revenue.

With the increasing number of public and private infrastructure projects, Tan and Mo see Pan-United as a “strong proxy” to Singapore’s growing construction demand.

“With many major construction projects such as Changi Airport Terminal 5, Tuas Port and the expansion of Sentosa and Marina Bay Sands Integrated Resorts on the horizon, we expect revenue to grow strongly at a three-year compound annual growth rate (CAGR) of 9.2% for FY2024 – FY2026,” they write.

See also: No major negative surprises expected in 2QFY2024, RHB lifts DBS’s TP to $41.20

“In addition, Singapore’s transition towards net-zero emissions by 2050 is expected to increase demand for Pan-United’s products, particularly its proprietary low-carbon PanU CMC+ [formerly known as PanU CarbonCure Concrete] for the construction sector,” they add. “Backed by these favourable tailwinds, Pan-United’s FY2024 – FY2026 net profit is expected to grow at a three-year CAGR of 21.6% y-o-y.”

Strong net cash position

With its strong net cash position, the analysts also expect Pan-United to distribute higher dividends and conduct more share buybacks given its three-year net profit CAGR of 21.6%.

See also: CGS International lowers TP to $3.30 for HongKong Land following challenging near-term outlook

“Pan-United has been consistently paying out dividends for the past five years at a 45% - 60% dividend payout ratio for FY2019 – FY2023 (excluding FY2020), above its formal dividend policy of not less than one third of its annual patmi. We expect dividends to increase to 2.8 - 4.0 cents [per] share, implying a dividend payout ratio of around 44% and dividend yields of 6% - 9%,” the analysts say.

Tan and Mo have given Pan-United a target price of 71 cents, which is pegged to 11 times its FY2024 P/E.

“We think Pan-United is undervalued at its current attractive valuation of 8.0 times FY2024 P/E, a 46% discount to its peers. We believe Pan-United deserves a re-rating, given its commanding domestic market share, favourable tailwinds and industry leadership in low-carbon concrete, backed by expected earnings growth for FY2024 – FY2026,” they add.

As at 4.02pm, shares in Pan-United are trading 2 cents higher or 4.30% up at 48.5 cents.

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