BRC ASIA LIMITED (SGX:BEC)
BRC Asia - Steel Looking Good
- Construction activities have returned to ~75% of pre-COVID-19 levels; we expect a further recovery with roll-out of COVID-19 vaccination programmes.
- BRC Asia has locked in supply for inventory requirements for the rest of FY21F; this should allow the company to uphold healthy GPM of 11%.
- We believe BRC Asia is on track to achieving S$40m net profit for FY21F. Reiterate ADD and target price of S$1.90.
Continuous improvements in construction activity
- Construction activity in Singapore continues to improve progressively – BRC Asia (SGX:BEC) notes that industry run-rate has recovered to ~75% of pre-Covid levels currently.
- Earlier this week, the Singapore government announced plans to start vaccinating migrant workers living in dorms against COVID-19, and we believe this could pave the way for further loosening of social distancing measures at construction sites in the near future. As contractors adapt better to a new working environment, we expect construction activities in Singapore to further improve to ~80% of pre-COVID level by mid-CY21.
- BRC Asia’s order book stood at a healthy level of S$1.09bn as of end-1Q21; we expect this to underpin revenue growth of 30% y-o-y for FY9/21F to S$794m.
On track to double net profit in FY21F
- Despite the rapid escalation of international steel prices year-to-date, we understand that BRC Asia has locked in purchase of inventory requirements for the rest of the year. We remain confident that BRC Asia can continue to uphold healthy GPM of 11% in FY21F, in spite of the likelihood of higher provision for onerous contracts (an accounting treatment where BRC Asia has to take mark-to-market losses due to higher steel market prices, which can be later reversed and credited to the profit and loss statement when deliveries under such sales contract are executed).
- We continue to expect BRC Asia's FY21F net profit to double to S$40m (FY20: S$20.4m), a record high for the company.
Reiterate ADD and target price of S$1.90 for BRC Asia
- We continue to like BRC Asia as a proxy to Singapore’s construction sector recovery, given its market leadership in the reinforced steel industry. Reiterate ADD, as we anticipate earnings recovery in FY21F with further resumption of construction activities.
- Our target price for BRC Asia is unchanged at S$1.90, still based on 1.57x CY21F P/BV (GGM: ROE 14.9%, cost of equity 9.7%, terminal growth 0.5%).
- See BRC Asia Share Price; BRC Asia Target Price; BRC Asia Analyst Reports; BRC Asia Dividend History; BRC Asia Announcements; BRC Asia Latest News.
- Potential catalysts include loosening of social distancing measures in the workplace and higher dividend payout.
- Downside risks include counterparty credit risk.
ONG Khang Chuen CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-03-10
SGX Stock
Analyst Report
1.900
SAME
1.900
