• Pan United (SGX:P52)'s FY21 revenue and gross profit were largely in line. Net profit (S$18.7m) exceeded our estimates (S$16.7m) by 12%, due to higher share of profits from associates (S$5.3m) and government grants (S$3.4m).

Construction Works Are Gaining Pace

• Consumption of ready-mixed concrete (RMC) in Dec 21 came in at 1.09m m3 (+18% y-o-y) and 11.6m m3 for the full year. BCA forecasts FY22 numbers to come within 12.5-14m m3, potentially outperforming pre-pandemic level of 13m m3.
• Labor shortage is also improving. Nov-Dec 2021 has seen a monthly average inflow of 18,000 CMP workers vs 2,000-3,000 workers between May-Oct 21. From 13 Mar onwards, entry process via industry-led route is further shortened for new work permit holders under the two-day pre-departure program. (7 days previously)

Cost of Raw Materials Remains a Concern

• Price of cement has been rising steadily since July 21 to S$98/tonne in Jan 22 (+3%). With coal prices up ~178% y-o-y, cement prices are unlikely to correct in the near term. Higher costs will be reflected in ready-mixed concrete (RMC) prices. Jan 22 price of S$104/m3 is +10% higher vs Jan 21.
• RMC prices will also be further propped up by robust demand as FY22 forecasted construction demand returns to FY19 level of S$27-32b. The coming years (FY23- FY26) also have an average annual demand of S$25-32b and this have yet to include the development of the 2 integrated resorts (~S$5-7b) and Changi Airport T5.

Sector Outlook

• Vietnam’s construction sector is forecasted to grow at a CAGR of 8.71% in the next 5 years whereas in Malaysia, we would only get a clearer picture of its spending plan for major infrastructure projects post-election.
• In the meantime, MRT3 Circle Line project of RM30b (~S$10b) is slated to open for tender this coming May. Timely rollout of this major project would help to lift Malaysia’s construction outlook. Both Vietnam and Malaysia subsidiaries make up 7% of Pan United’s total revenue.

Valuation & Recommendation

• Maintain trend in coal prices. We also introduced our FY23E estimates.

Source: SAC Capital Research - 29 Mar 2022