Pan-United saw earnings edge up 2% to $5.4 million in the 2Q end June. However, this was due to the absence of a $1.7 million loss from discontinued operations, net of tax, incurred a year ago.
Excluding this one-off loss, Pan-United’s earnings would have been 24% lower.
Revenue fell 6% to $164.8 million in 2Q17, from $175.7 million a year ago.
See: Pan-United earnings up 2% to $5.4 mil in 2Q; interim dividend halved
Even though the outlook for Singapore construction is expected to improve, Yeo says demand for RMC is likely to remain subdued. This is due to an expected increase in off-site construction processes such as prefabrication, leading to a moderation of on-site building construction processes.
On top of this, selling prices are also on a downtrend, Yeo says.
More worrying, however, could Pan-United’s decision to slash its interim dividend.
The group has recommended an interim dividend of 0.5 cent per share for the period – half of the interim dividend of 1 cent per share paid in the corresponding period last year.
“Interim dividend cut for FY17 potentially signals risks of future DPS reduction and lower dividend yield,” says Yeo. “Dividend yield is now 5% and below.”
In addition, Yeo says the 1-for-4 rights issue in July has diluted EPS for the stock. Pan-United’s share base has now increased to 700 million shares with 25% dilution, with no significant improvement in earnings forecast.
To make matters worse, Pan-United has signalled its intention to spin off its port business, which would expose it further to the Singapore construction industry.
In view of the soft outlook, Yeo has cut Pan-United’s earnings forecast for FY17F and FY18F by 14% and 10%, respectively.
“We see the stock drifting into negative territory as macro outlook for construction is expected to weigh on earnings,” says Yeo.
Shares of Pan-United closed half a cent lower at 56 cents on Monday.
