BRC ASIA LIMITED (SGX:BEC)
BRC Asia - 3QFY21 Resilient In Spite Of Labour Challenges
- BRC Asia’s 3QFY21 net profit of S$10.2m was an improvement (+7% q-o-q); 9MFY21 earnings made up 72% of our full-year estimates, in line with expectations. Provisions are expected to see some write-backs, assuming steel prices do not escalate further.
- BRC Asia’s operations remain resilient despite labour shortage in the construction sector. A reopening of borders and re-entry of foreign labour will be positive for BRC Asia and the sector as a whole.
- Maintain BUY with an unchanged target price of S$2.00.
BRC Asia's 3QFY21 results in line with expectations.
- BRC Asia (SGX:BEC)’s reported 3QFY21 net profit of S$10.2m (+7% q-o-q) and reversing from a net loss position on a y-o-y basis. Recall that 3QFY20 saw the effects of the circuit breaker. 9MFY21 earnings of S$29.3m forms 72% of our full-year estimates, in line with our expectations given that we are expecting some write-back in provisions by the end-FY21.
- Improvement on a sequential basis. Revenue was up to S$340.2m (+22% q-o-q) even though there were some slight effects from the Phase 2 (Heightened Alert) measures. However, the group was still affected by the provisions for onerous contracts, which amounted to S$11.5m in 3QFY21 and almost S$40.4m in 9MFY21. This saw gross profit margins decline to 5.2% in 3QFY21 (down 0.6ppt q-o-q).
- BRC Asia's management noted that such provisions are done according to relevant accounting standards. The higher steel prices had caused such provisions to be accounted for. Provisions should be reversed when deliveries under such sales contracts are executed, or when the contractual obligations no longer exist, or when the costs to meet the obligations no longer exceed the sales value.
- Resolute orderbook. The group’s orderbook stands at S$1.1b, for up to five years. Net gearing is at 1.1x though we note that BRC Asia’s short-term borrowings are back against its inventories, which amount to almost S$388m.
STOCK IMPACT
- Awaiting a recovery in labour supply. Management noted current labour constraints in the construction sector were due to the re-tightening of foreign labour supply. Safe management measures had also arose due to the pandemic, which had an effect on costs as well as productivity levels at construction sites. While there is still some uncertainty regarding the return of foreign labour supply, the government has recently introduced a pilot programme that allows migrant workers from India to be brought to Singapore on a small scale. According to the authorities, if the pilot programme is successful, this method will be used to facilitate a steady inflow of migrants.
- Still room for growth in the construction sector. The construction sector grew by 98.8% y-o-y in 2Q21 due to a low base effect but in absolute terms, the value-add for this sector remained 31.6% below its pre-pandemic levels. With the strong pipeline of public sector projects, BRC Asia remains a proxy for the construction sector given its dominant market share.
EARNINGS REVISION/RISK
- Key risks: Credit risk from smaller construction players.
VALUATION/RECOMMENDATION
- Maintain BUY rating for BRC Asia with a target price of S$2.00, based on 11.5x FY21F P/E. This is pegged to its long-term average (excluding outliers of > 2 standard deviation at 25x). The exclusion is primarily from the high base in FY17-18.
- See
SHARE PRICE CATALYST
- Faster-than-expected recovery in construction activities.
- More public housing projects.
- M&As
Lucas Teng
UOB Kay Hian Research
|
https://research.uobkayhian.com/
2021-08-11
SGX Stock
Analyst Report
2.000
SAME
2.000
