BRC Asia - UOB Kay Hian 2021-02-05: 1QFY21 Building Back With Strength


BRC Asia - 1QFY21 Building Back With Strength

  • BRC Asia’s 1QFY21 net profit of S$9.6m has recovered substantially compared to 4QFY20 breakeven levels, despite a provision for onerous contracts in light of the higher steel prices.
  • The outlook for the construction sector remains steadfast in the medium term, boosted by public sector projects, and we still see room for BRC Asia to continue its recovery in sales volume.
  • Maintain BUY with a higher target price of S$2.00.

BRC Asia's 1QFY21 results in line with expectations.

  • BRC Asia (SGX:BEC) reported a net profit of S$9.6m for 1QFY21 (-24% y-o-y), accounting for 25% of our full-year estimates, in line with expectations. In spite of significant provision for onerous contracts, the group’s profit levels improved substantially compared to 4QFY20 breakeven levels.
  • The provision of onerous contracts comes amid a sharp increase in global steel prices during the quarter, leading to impairment amounting to S$7.9m.

Still room for growth in construction activities.

  • BRC Asia's 1QFY21 revenue recovered to S$213.4m (-6% y-o-y, +73% q-o-q) as construction activities continue to pick up. There was still a reduction in sales volume as COVID-19 safe working and management measures resulted in a slower pace of work.
  • BRC Asia’s orderbook remains at a high of S$1.09b while public sector construction projects are projected to grow in 2021. Gross margin of 11% in 1QFY21 dipped slightly but was still at a healthy level (-2.1 ppt y-o-y, -1.2% ppt q-o-q).

Placement oversubscribed.

  • BRC Asia recently conducted a placement of 10m shares to investors at S$1.42, representing about 4.1% of enlarged number issued shares. According to BRC Asia, the placement was received with strong demand and was oversubscribed.
  • Investors who received placement shares include established financial institutions and market leaders in the local insurance and asset management space. The funds received from the placement will be used for repayment of the group’s outstanding bank borrowings.

Medium-term outlook for the construction sector remains solid.

  • The Building and Construction Authority (BCA) projects total construction demand in 2021 to range from S$23b-28b, while 2022-25 construction demand is expected to reach S$25b-32b. 2021 construction demand is an improvement from the S$21.3b (preliminary estimate) in 2020.
  • The public sector is expected to drive construction demand in 2021, projected at S$15b-18b with an anticipated stronger demand for public housing and infrastructure projects. The BCA notes that the construction demand projection excludes any potential awards of construction contracts for the development of Changi Airport Terminal 5 as well as the expansion of Integrated Resorts.
  • Potential upside can come from the continuation of such mega projects, in our view. We note that the value of construction contracts awarded continues to be on the recovery trend.

Accounting provisions for onerous contracts.

  • Given the rising steel prices, BRC Asia's management had assessed and estimated that the costs to meet the obligations of certain sales contracts based on the value of inventory on hand plus estimated costs of inventory purchases and conversion costs incurred could be expected to exceed the economic benefits to be received. However, the relevant provisions for onerous contracts are reversed and credited to the profit and loss statement when deliveries under such sales contracts are executed.

Raise BRC Asia's earnings forecasts by 9-11% for FY21-23F

Key risks:

  • Credit risk from smaller construction players.


  • Faster-than-expected recovery in construction activities.
  • More public housing projects.

Singapore Research UOB Kay Hian Research | 2021-02-05
SGX Stock Analyst Report BUY MAINTAIN BUY 2.00 UP 1.880