BRC Asia - SAC Capital 2021-08-06: 3Q21 Beat Expectations With Stronger Deliveries

BRC ASIA LIMITED (SGX:BEC)

BRC Asia - 3Q21 Beat Expectations With Stronger Deliveries

BRC Asia (SGX:BEC) surprised with a q-o-q improvement in 3Q21 (ended June) for both topline (+21.8% q-o-q) and bottomline (+6.7% q-o-q), in spite of tighter movement controls from mid May to end June in Singapore.
BRC Asia's 9M21 net earnings of S$29.3m almost met our FY21’s estimates of S$30.2m. Besides the stronger order fulfillment, other key variances are lower interest costs and smaller provision for onerous contracts.

BRC Asia's gross margin fell to 5.2% in 3Q (2Q21: 5.8%) due to
- S$11.5m provisions set aside (2Q21: S$21.0m) to reflect the higher steel price for the orders that have yet to be delivered; and
- higher manpower costs.
As BRC Asia hedges its steel raw materials costs, some of these provisions may be reversed in 4Q when deliveries are made. Total provisions accrued to-date is S$43.4m.
BRC Asia recorded negative operating cash flow of –S$261m, in part due to working capital needs in line with higher sales, and build up of inventory (+38% to S$388.6m) to meet the deliveries in 4Q. This pushed up total borrowings to S$395m (Mar 21: S$134.5m). Net gearing had also risen from 0.2x as at end Mar to 1.1x.
Movement controls were tightened further from early July to mid Aug. Any prolonged border closure will again delay construction works due to lack of foreign manpower. As with other companies in the construction sector, BRC Asia’s biggest hurdle is the ability to execute orders.

We raised our earnings estimates for FY21E (Sep) and FY22E (Sep) by 23% and 12% respectively to reflect higher order deliveries. BRC Asia's orderbook remains firm at S$1.1bn. However, uncertainties surrounding COVID Delta variant and regulatory measures to cope with the infection pose risks to our earnings estimates.
See
Our target price for BRC Asia stays at S$1.64. HOLD.

Peggy Mak SAC Capital Research | https://www.saccapital.com.sg/ 2021-08-06

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.640 SAME 1.640