Margins normalized as expected. Pan-United's net profit dropped 16% yoy to S$9.9m in 1Q09 on lower ASPs. The ASPs for Ready-Mixed Concrete (RMC), the key product that accounts for c.70% of total sales, dipped by 6%-8% during the quarter, partly due to the lower raw material costs. As a result, overall net margin moderated by 2.4ppt to 7.7%. Nevertheless, sales volume for RMC has actually remained strong on the back of higher construction activities in Singapore.

Balance sheet remains healthy. Despite global credit crisis, Pan-United's average collection period has improved from 101 days in 2Q08 to 74 days in 1Q09. Current net gearing stays low at 12%. We expect the group's net gearing to increase to 22% in 2009, due to a significant capex of S$40m for shipping fleet expansion.

A beneficiary of government's expansionary budget. We are leaving our numbers intact for now given that 1Q09 earnings were in line, making up around 28% of our full year estimate. In terms of valuation, we are raising our PE multiple for BBM segment from 5x to 7x, in line with a 20% discount to the average valuation of its more established peers in Asia. As a consequence, our TP is lifted to S$0.65. Pan-United is well positioned to benefit from government's expansionary budget as we reckon >60% of its sales is derived from infrastructure related projects. With the stock offering decent yield of 5.5% and potential capital gain of 18%, we maintain BUY on Pan-United.