Monday, September 6, 2010

New position : Pan-United Corp

Bought 9,000 shares of Pan United Corp at $0.485 today. The company was listed in 1993 and has a relatively long track of rewarding shareholders with generous dividend payouts. Pan United Corp has three main businesses - Basic building materials, Shipping and Port & Logistics. The company's subsidiary United Cement is a key supplier of ready-mix concrete, and we expect sustained demand for cement in Singapore over the next few years, as a huge supply of newly-built homes come onto the market.

We are less positive on the shipping business, but the company's handysized container vessel has the potential to be sold for a profit, which will provide cash for further investment. On the other hand, the company's 51.3% stake in the Changshu Xinghua port (CXP) looks particularly interesting. According to the company website:

Changshu Xinghua Port Co Ltd (CXP) is one of the main port terminal operator in Eastern and Central China along the Yangtze River. It is among the ten busiest river ports in China. CXP is one of the leading hubs for pulp & paper and steel products in China. In 2009, CXP registered a 6% increase in general cargo volume to 5.6 million tonnes. We are leading hub in pulp&paper, steel and logs.
CXP lies on the southern bank of the Yangtze River just 54 nautical miles from the river mouth. It is strategically located to serve Jiangsu, China's most industralised province, and capitalise on the enormous potential of its hinterland.
CXP boasts excellent natural attributes with a constant deep and silt-free water depth of 13-metres.Well sheltered, it has eight berths with a total berth length of 1.7km capable to handle vessels up to 100,000 dwt. CXP's total handling capacity is 10.0m tonnes per annum.

Macquarie International Infrastructure Trust (MIIF) carries its 38% stake in CXP at $92.8 million (last revalued in June 2010), while Pan United Corp's estimated carrying value for its 51.3% stake is a paltry $36.5 million (at cost, according to a DBS report). Based on MIIF's valuation, Pan United's stake in the port should be worth $125 million, or almost $89 million higher.

With 555,366,160 shares outstanding, Pan United's market cap is about $270 million, and CXP's market value is already half of that. The stock is also trading slightly under book value (about $0.50), which means that we are getting a further discount on the underlying subsidiaries. 

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