Pan-United to spin off China ports business in HK listing

Singapore

RIDING on a wave of improved sentiment around the world and in China, Pan-United Corporation said on Wednesday that it will spin off its profitable China river ports business and list it in Hong Kong as Xinghua Port Holdings.

No pricing details are available yet, though management is hoping the de-merger can be completed by the end of the year. Existing shareholders will receive Xinghua shares through a capital reduction.

The move aims to let investors better assess the respective market values of both businesses, Pan-United said. It will raise up to S$60.9 million through a one-for-four rights issue at S$0.43 per new share to partially pay off port-related debt.

Currently the largest ready mixed concrete supplier in Singapore, Pan-United also owns two Chinese ports in Changshu city, on the south bank of the Yangtze River. The ports process over a fifth of China's total imports of pulp and paper. Other key cargoes handled include finished steel products, logs, and containers.

The ports have "reached a certain level that we're very comfortable with", said Pan-United chief executive officer May Ng, whose family owns about 70 per cent of the firm.

She told The Business Times over the phone that port utilisation rates on a combined basis have grown from 70 per cent in the second quarter of 2014 to 83 per cent today.

In its latest results released on Wednesday, Pan-United said cargo volumes for the three months ended March 31, 2017, grew 6 per cent year on year. Cargo volumes in 2016 were up 7 per cent to 13 million tonnes.

"The ports are situated in a good location, so we expect to grow with the GDP (gross domestic product) of the area," she said. The region around the Yangtze River has been growing economically at a double-digit pace, driven by the development of China's west such as Sichuan province and Chongqing municipality, she said.

Ms Ng added that the company intends to grow the ports business organically, though it evaluates market opportunities from time to time.

The origins of Pan-United come from a hardware company co-founded by Ms Ng's father Ng Kar Cheong in 1958, Hiap Soon & Company. He was a former youtiao (fried dough fritters) seller who went into business on the encouragement of his grandmother.

Following Singapore's independence in 1965, Hiap Soon moved into construction. Pan-United Shipping was formed in 1974 to provide tug and barge services to move Indonesian logs to Singapore, and eventually expanded into shipbuilding and repair. In 1993, Pan-United listed on the Singapore Exchange (SGX) mainboard. The ports business began in 1994 when a site in Changshu was acquired and developed. The concrete supply business began in 1999.

In 2004, the shipyard business was spun off and listed as Pan-United Marine, which was then taken over by Dubai Drydocks World and delisted in 2007. The next significant corporate move came in 2013, when Pan-United increased its stake in its existing Xinhua port from 51.3 per cent to 85.5 per cent. In 2014, it acquired an adjacent port, Changshu Changjiang International Port.

Amid growth in the ports business, Pan-United's concrete and cement business was hard hit by the construction slowdown in Singapore in recent years. Margins plummeted and the ports business overtook the concrete business in net profit contributions in 2015.

Nevertheless, Pan-United has grown its Singapore market share from 33 per cent a few years ago to 40 per cent today, Ms Ng said.

"We have a steady pipeline of projects in Singapore especially from the public sector. The recent pick-up in the private residential market, if sustained, will give a bit of an impetus to demand."

Meanwhile, its regional concrete and cement business has been growing in Vietnam and Malaysia. In Ho Chi Minh City, it is now the largest ready mixed concrete supplier. The company plans to grow more in both countries by adding more batching facilities, Ms Ng said.

NRA Capital head of research Liu Jinshu highlighted that net gearing of the concrete and cement business will drop to 0.12 times after the spin-off. "The group will have financial headroom to expand in its target markets like Malaysia and Vietnam," he said.

On Wednesday, Pan-United announced results for the three months ended March 31, 2017.

Net profit from continuing operations fell 19 per cent to S$3.1 million, and revenue fell 14 per cent to S$153.2 million, mainly due to lower concrete and cement demand and prices in Singapore.

Pan-United last traded at S$0.72 before a trading halt. Shares resume trading today.