BRC Asia - CGS-CIMB Research 2021-08-05: Light At The End Of Tunnel?


BRC Asia - Light At The End Of Tunnel?

  • Despite a S$11.5m provision for onerous contracts, BRC Asia's 3QFY21 net profit grew 6.7% q-o-q to S$10.2m and showed strong reversal from last year’s losses.
  • Construction activities in Singapore remained healthy at ~70% of pre-COVID-19 levels in 2QCY21. We see room for further output gains in months ahead.
  • We believe BRC Asia is on track to double its net profit to S$40m in FY21F. Minimal capex could point to higher dividend payout. Reiterate ADD.

BRC Asia reported solid 3QFY21 results

  • BRC Asia (SGX:BEC) reported 3QFY21 (Apr 2021 to Jun 2021) net profit of S$10.2m (+6.7% q-o-q), a reversal from 3Q20’s S$2.5m net loss. The reported net profit took into account S$11.5m worth of provision for onerous contracts during the quarter (which can be reversed later when projects are completed) due to higher steel prices.
  • We deem the set of results in line with expectations, with 9MFY21 net profit making up 73.3% of our FY21F.
  • BRC Asia’s orderbook remained robust at S$1.1bn as of end-Jun.

Light at the end of tunnel?

  • Construction output in Singapore tapered slightly to ~70% of pre-COVID-19 levels in 2QCY21 (1QCY21: ~80% of pre-COVID-19 levels) mainly due to workforce constraints, as Singapore tightened inflow of foreign workers during the quarter. Nevertheless, BRC Asia was able to achieve 21.8% q-o-q revenue growth – we understand that the growth was driven mainly by steel price increases, while volumes held relatively steady.
  • Looking ahead, we believe there is room for gradual output improvements from 4QCY21 onwards as Singapore starts treating COVID-19 as endemic.
  • Key catalysts to look out for include:
    1. productivity gains due to loosening of social distancing measures in construction worksites, and
    2. easing entry restrictions for foreign workers.

On track to double net profit in FY21F

  • Despite the rapid increase in international steel prices year-to-date, we understand that BRC Asia has locked in steel inventory for the rest of the year, and hence should continue to retain healthy profit spreads on its existing orderbook.
  • We continue to expect FY21F net profit to double to S$40m (FY20: S$20.4m), a record high for BRC Asia. Any reversal of provision for onerous contracts (upon complete execution of contracts, or reversal of steel price uptrend) could provide further upside to our forecasts.
  • In view of stronger earnings, we also expect a corresponding uplift in dividend payout. Our current dividend forecast of S$0.08 represents a conservative assumption of 50% dividend payout ratio (FY19: 60%; FY20: 70%) from BRC Asia.

Reiterate ADD on BRC Asia and target price of S$1.90

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-05
SGX Stock Analyst Report ADD MAINTAIN ADD 1.900 SAME 1.900