Brokers' take: Lim & Tan starts coverage on Pan-United with 'buy', S$0.54 target

CONCRETE and cement provider Pan-United Corporation : P52 0% is poised to enjoy year-on-year earnings growth in FY2022 due to upcoming infrastructure projects and rising ready-mix concrete (RMC) prices, according to Lim & Tan Securities.

The brokerage has initiated coverage on the stock with a "buy" call and price target of S$0.54. This is based on an EV/Ebitda (enterprise value/earnings before interest, taxes, depreciation and amortisation) ratio of 6.9 times, and represents a discount of 10 per cent to the stock's peers (see amendment note).

"We like Pan-United primarily based on the currently strong macro outlook and strong company fundamentals," said Lim & Tan in a report on Monday (Mar 21).

Highlighting the company's strong balance sheet and sustainable cash flows, the brokerage underscored significant improvement in its FY2021 net gearing to 1 per cent from 18 per cent in FY2020.

This is coupled with the company's favourable FY2021 financials as net profit after tax returned to pre-Covid levels, despite lower government grants and increased tax expenses compared with the previous fiscal year.

Going forward, Lim & Tan foresees Pan-United benefiting from higher RMC prices and order book backlog to report a stronger net profit in FY2022.

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The research house projects a higher dividend of 2 Singapore cents per share, which translates to a yield of 5.7 per cent based on the stock's last closing price of S$0.35. This is compared with the current payout of 1.6 cents per share, representing a 4.6 per cent yield and 55.7 per cent payout ratio.

Lim & Tan also noted that the company has bought back around 41.7 per cent of their total share buyback allowance at increasing prices since December 2021. This signals that current prices are attractive to Pan-United's management, in the research house's view.

Citing increased Building and Construction Authority (BCA) projections for construction demand in 2022, the research house said it was optimistic that upcoming government-led, multi-year infrastructure projects are set to propel "better earnings" for Pan-United in FY2022.

"On the back of pent-up demand in the market, (BCA's) 2023-2025 forecasts were also project to reach between S$25-32 billion annually. This is up from the previous projection of S$23-28 billion, owing to accelerating easing of the restrictions brought about by good domestic pandemic management," it added.

As at the midday trading break on Monday, shares of Pan-United were S$0.01 or 2.9 per cent higher at S$0.36.

Amendment note: Lim & Tan has clarified a mistake in its report regarding the valuation multiple which its target price was based on. The article has been amended to reflect the correct multiple. 

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• Brokers' take: Phillip raises Pan-United TP to S$0.46 on construction sector recovery
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