Brokers’ take: Phillip raises Pan-United target price on higher demand for concrete

PHILLIP Securities on Monday (Jun 13) raised Pan-United’s target price to S$0.68 from S$0.46 on higher demand for ready-mixed concrete (RMC) brought about by the recovery of the construction sector. It maintained a “buy” call on the counter.

The new target price is pegged to 12 times the brokerage’s price to earnings estimates for FY2022 and is a 20 per cent discount to Pan-United's 10-year historical average.

The new target price also implies a potential upside of 56.3 per cent from Pan-United’s Tuesday trading price of S$0.435 as at 3.36 pm. The counter was up S$0.005 or 1.2 per cent at the time.

In a research report, senior research analyst Terence Chua raised the concrete and cement provider’s earnings estimates by 35 per cent in FY2022 and 26 per cent in FY2026 to account for the higher demand for RMC.

Chua also expects construction demand to remain robust for the next few years, supported by strong demand for public housing and the backlog of projects from Covid-19 delays.

According to data from the Building and Construction Authority, demand for RMC for the first 3 months of 2022 was 5 per cent higher year on year.

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Chua noted that progress payments billed for 2021 were 32.5 per cent higher than in 2020, while contracts awarded for the first 3 months of 2022 were also 33.2 per cent higher than the first 3 months of 2021.

However, supply-chain disruptions and volatile freight costs may hinder growth recovery, said Chua.

“We believe the rising cost of RMC is a potential concern, though this is mitigated by the group’s ability to pass through these costs to the customer,” he added.

Noting Pan-United’s 40 per cent market share in the industry, Chua continues to see the company as a key beneficiary of the construction sector recovery.

“Pan-United’s batching plants still have capacity to take on a 10 to 15 per cent increase in RMC demand in Singapore,” he said.