The analysts note that the key standout was the concrete segment ebitda margin at 9.9%, a 0.8% percentage points increase y-o-y, which they believe is due to favorable project mix and better operating leverage.
The group’s 1HFY2024 revenue growth was “healthy” on the back of strong ready-mix concrete (RMC) demand in Singapore, elevated RMC prices, and recovery in overseas operations in Vietnam and Malaysia, the analysts note.
Given the latest statistics from the Building and Construction Authority (BCA), which revealed that RMC demand for the first five months of 2024 was up 12% y-o-y, Tan and Ong believe that the construction industry locally remains healthy. Construction output in Singapore rose 6% y-o-y, according to BCA.
This was mainly driven by elevated industry order books and stronger level of construction activities (1H23 was impacted by Heightened Safety Period), they add.
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“With RMC demand in Singapore backed by a healthy pipeline of both public and private construction projects, we believe Pan-United is well positioned to benefit from a multi-year construction uptrend,” the analysts say.
The group should be able to sustain elevated concrete segment margins in the coming quarters, mainly premised on these few factors: execution of more projects requiring a larger proportion of specialised concrete and robust RMC volumes driving stronger operating leverage.
Tan and Ong raise their FY2024- FY2026 core earnings per share by 5%-6%, mainly on higher concrete segment operating margins.
They note that Pan-United currently trades at an undemanding valuation of 3.7x CY2025 ev/ebitda, approximately 1 standard deviation below its 2012-2024 historical average and about 40% discount to regional cement/concrete peers.
As such, their new target price of 72 cents is based on a 5.8x CY2024 ev/ebitda.
As at 12.25pm, shares in Pan-United are trading 0.5 cents lower or 0.935% down at 53 cents.
