FY12 ended on a good note due to buoyant demand for building materials. A turnaround for loss-making shipping was the icing on the cake. Operating momentum is likely to continue into 2013 but earnings could fluctuate due to the timing of contract completion.
FY12 core net profit of S$40.6m met our S$41.5m estimate and consensus’s S$40.3m. Operating momentum has been positive. We raise our FY13-14 numbers by 7-9% and introduce FY15. Our residual income-based target price rises to S$0.91. However, given the recent price run-up, we downgrade PUC from Outperform to Neutral as near-term potential is priced in.
Topline grew 39.5% yoy largely due to a 33.6% increase in revenue contribution from Basic Building Resources (BBR) Core net profit rose 38.9% yoy to S$40.6m. The key positive this year was a successful turnaround of its loss-making shipping business as PUC cut capacity and raised utilisation by shipping coal offtake from its investments in Indonesia.
Despite inflationary pressure on costs, margins held up for most of its business segments, reflecting good cost control. To reward shareholders, a 2.5 Scts final dividend was announced, bringing total dividend payout to 4 Scts (from 3.5 Scts).
Looking into 2013
Management sees a strong demand pipeline for BBR although 1Q13 margins could be affected by one-off demurrage charges as bad weather earlier this year hampered materials delivery. BBR margins are likely to fall due to costlier raw materials supply and a potential increase in transport costs.
For shipping, the positive operating momentum is likely to continue into 2013 although a full-fledged recovery is only likely in 2H14. Port operations should continue to flourish as CXP regains its market share in products handled (pulp & paper, logs, steel).
Based on the current price of S$0.92 and a market implied long-term growth rate of 3.8% (CIMB c.3.6%), we think that PUC’s growth potential is priced in. Downgrade to Neutral. (Read Report)
Source : CIMB Research