Is Pan-United Corporation Ltd Set For Growth With This New Purchase?

Pan-United Corporation Ltd (SGX: P52) has just acquired a new piece of land in Johor Bahru, Malaysia, for RM10.6 million last week. Could this acquisition provide the bedrock for growth for the company?

Details of the deal

The piece of land in question is earmarked for industrial purposes and comes with a 60-year lease. Pan-United had bought the land from Johor Corporation, the investment arm of the Johor State Government.

What is the purpose of the purchase?

Pan-United hopes to use the land for the manufacturing of ready mixed concrete (RMC) and slag, a cementitious material used in its RMC business. The development cost for the project, including the cost of the land acquisition, is expected to be around S$55.0 million. The company will be funding the development through internal funds and borrowings.

The longer-term plan for the yet-to-be-built manufacturing facility is to help Pan-United expand its cement, aggregates, and RMC businesses in the Southeast Asia region. These businesses falls under the company’s Basic Building Resources business division. Basic Building Resources is currently the largest revenue and profit contributor for Pan-United; in 2013, 82% of the company’s revenue and 78% of its net profit came from the division.

Currently, Pan-United is the largest cement and RMC supplier in Singapore. The company also has operations in other parts of Southeast Asia. For instance, it operates mines in Malaysia and Indonesia through licensing agreements; it also has a joint-venture in Vietnam to supply RMC products in the country.

Despite having some presence in foreign shores, most of the company’s revenue still comes from Singapore. This thus signifies huge expansion potential for the company in other parts of Southeast Asia. To add on to the company’s potential for growth, it’s also worth pointing out that many other countries in Southeast Asia are rapidly building up their infrastructure and their populations and geographical sizes are both much larger than that of Singapore – these can all provide powerful tailwinds for companies supplying construction materials.

But that said, the road won’t be easy though – the production of building materials such as cement and aggregates are by nature a localized business due to the need for mining of the raw materials. Therefore, Pan-United would likely be facing established local players in whichever country it intends to expand into.

Foolish Summary

Although the dollar amounts involved with the purchase of the Malaysian land is small relative to the size of the company, the long-term plan behind the purchase is noble. If Pan-United can execute its regional expansion plan effectively, the company might be on the brink of exciting future growth.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim does not own any companies mentioned.