Company Overview

Pan United’s Basic Building Materials business commands a one-third market share in both cement and ready mixed concrete in Singapore. Its Ports & Logistics division has a 85.3% stake in a top 10 river port in China. The company also operates a Shipping fleet of 10 tug & barge pairs.

How do we view the acquisition?

• PanU acquires 34% of Changshu Xinghua Port for S$100.98m (~20x FY12 P/E), to bring its stake to 85.3%
• We view the price as fair as CXP is a uniquely competitive cash generating asset (~45% ebitda margins) which should see earnings steadily grow with the Chinese economy over the long term.

How do we view 2q13 results?

• Revenue was up 4.5%y-y, mainly due to Basic Building Materials while Port & Logistics is seeing a flat year as fees were kept constant despite volumes rising 5.5%y-y. Shipping revenues were flat.
• PATMI was down 24.1%y-y due to 2q12 boosted by oneoff $2.2m vessel disposal gain and 2q13 having a $2.2m one-off trade receivable impairment
• Management guides BBM to pick up even more going into 2H13. On the other hand, we have moderated our expectations for CXP in view of the lack of port-fee increases. But as the acquisition is expected to complete by end 3q13, about a quarter’s worth of earnings, $1.5m, would largely offset to bring contributions from CXP to $10.2m from $7.6m last full year.
• End result is that FY13 forecast are largely maintained.

Investment Actions:

We raise our TP from S$1.21 to S$1.27 as our DCF reflects the stronger free cash that PanU will now have with increased exposure to CXP, however we lower the rating from Buy to Accumulate to acknowledge that general near term market conditions are risk averse at the moment. At S$0.865, PanU is starting to look like a value buy again at 9.9x FY13e earnings, 5.1% forecast yield.

Source: PhillipCapital Research - 16 Aug 2013