Building Materials Sector Update: Riding on Strong Construction Demand

Pan-United Corp Ltd: Supported by Healthy Infrastructure Backlog

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Pan-United Corp Ltd (PanU) is well-positioned to capture the healthy construction demand in Singapore, supported by a sizeable exposure to public infrastructure projects. The company’s strong performance in 2H24 was driven by sustained margin strength, with EBITDA margin staying elevated at 9.4% (flat year-on-year). PanU’s FY24 core net profit of S\$42 million (+18% year-on-year) was largely in line with expectations.

The Building and Construction Authority (BCA) forecasts construction output to increase by around 5% year-on-year in 2025F, underpinned by a healthy project backlog. BCA also expects construction contracts awarded to rise by around 13% year-on-year, driven by strong demand from the infrastructure and industrial sectors. These projections bode well for PanU, which is a key beneficiary of healthy construction demand given its sizeable exposure to public infrastructure projects.

We believe PanU is well-positioned to capture the construction tailwinds ahead, supported by its improved balance sheet strength (end-4Q24 net cash at around 20% of current market cap). The company’s FY25F EBITDA margin is expected to remain elevated at around 9.3%, backed by improved operating leverage from rising industry volumes and an increased proportion of infrastructure projects benefiting its sales mix.

Reiterate Add rating and target price of S\$0.75, as we believe PanU is well-positioned to ride on the construction upcycle. Key re-rating catalysts include strong industry volume growth and sustained margin strength, while downside risks include counterparty credit risks and a slowdown in project offtake volumes negatively impacting ready-mixed concrete sales and margins.

Indonesia Cement/Concrete Peers: Riding on Infrastructure Boom

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The Indonesia cement and concrete sector is also poised to benefit from the country’s infrastructure boom. Indocement (INTP IJ, Add) and Semen Indonesia (SMGR IJ, Add) are expected to see earnings growth of 9.8% and 18.6% CAGR, respectively, over the next two years, driven by robust domestic demand.

Indocement is the second-largest cement producer in Indonesia, with a market share of around 30%. The company is well-positioned to capitalize on the government’s ambitious infrastructure development plans, including the construction of new toll roads, railways, and power plants. Semen Indonesia, the largest cement producer in the country, is also set to benefit from the infrastructure push, with its strong market position and extensive distribution network.

Both Indocement and Semen Indonesia are trading at attractive valuations, with forward P/E ratios of 9.2x and 9.4x, respectively, for 2025F. The companies’ strong market positions, healthy earnings growth prospects, and reasonable valuations make them attractive investment opportunities in the Indonesia building materials sector.

Malaysia Cement/Concrete Peers: Capitalizing on Infrastructure Projects

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In Malaysia, the cement and concrete sector is also expected to benefit from the government’s focus on infrastructure development. Malayan Cement Bhd (LMC MK, Add) and Hume Cement Industries Bhd (HUME MK, Not Rated) are well-positioned to capitalize on this trend.

Malayan Cement, the largest cement producer in Malaysia, is expected to see its earnings grow at a CAGR of 10.6% over the next two years. The company’s strong market position, coupled with its involvement in major infrastructure projects, such as the East Coast Rail Link and the Kuala Lumpur-Singapore High-Speed Rail, should drive its performance going forward.

Hume Cement, a smaller player in the Malaysian cement market, is also expected to benefit from the infrastructure boom, with a projected earnings CAGR of 4.6% over the same period. The company’s focus on specialized cement products and its strategic locations near major construction sites should help it capitalize on the increased demand for cement and concrete.

Overall, the Malaysia cement and concrete sector appears well-positioned to ride on the country’s infrastructure development, with Malayan Cement and Hume Cement offering attractive investment opportunities in the space.

Thailand Cement/Concrete Peers: Diversified Player Siam Cement Stands Out

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In Thailand, the cement and concrete sector is also expected to benefit from the government’s infrastructure push. Siam Cement (SCC TB, Reduce) and Siam City Cement (SCCC TB, Not Rated) are the two major players in the market.

Siam Cement, the largest and most diversified cement and building materials company in Thailand, is expected to see its earnings grow at a strong CAGR of 40.2% over the next two years. The company’s exposure to various business segments, including cement, petrochemicals, and packaging, provides it with a well-diversified revenue stream and helps mitigate the cyclicality of the cement business.

Siam City Cement, on the other hand, is a more focused player in the cement and concrete sector. The company is expected to see a more modest earnings CAGR of -9.8% over the same period, as it is more directly exposed to the cyclicality of the cement market.

Given Siam Cement’s diversified business model and strong earnings growth prospects, the company stands out as an attractive investment opportunity in the Thailand building materials sector, despite the Reduce rating due to its current valuation.

Conclusion

The building materials sector, particularly the cement and concrete segments, across Southeast Asia appears well-positioned to benefit from the ongoing infrastructure development in the region. Companies with strong market positions, diversified business models, and involvement in major infrastructure projects are poised to capitalize on this trend and deliver robust earnings growth in the coming years.