BRC Asia - UOB Kay Hian 2021-09-21: Major Beneficiary When Labour Supply Returns


BRC Asia - Major Beneficiary When Labour Supply Returns

  • As the market leader in the supply of steel products in Singapore, BRC Asia is set to benefit from the recovery in the construction sector and major upcoming projects including the new Tuas Mega Port, Changi Airport Terminal 5 and Greater Southern Waterfront.
  • The recent investment from Hong Leong Asia, making it the second-largest shareholder with a 20% stake, should boost market confidence and lead to growth opportunities for BRC Asia.
  • Maintain BUY with a lower target price of S$1.76.

BRC Asia - Market leader for steel products.

  • BRC Asia (SGX:BEC) acquired its closest rival Lee Metal Group (Lee Metal) in Jul 18, giving BRC Asia a 70% market share in the supply of steel products. These include prefabricated steel columns, steel meshes and steel rebars utilised in major construction projects such as public housing, private residential properties and civil engineering works. In May 21, Singapore’s government passed a bill which allowed the government to borrow S$90b in bonds to fund national infrastructure projects and upgrades. With a monopolistic market share, BRC Asia is set to benefit with close to 90% of its total annual revenue derived from Singapore.

Upcoming major projects to support revenue growth.

  • Several major project initiatives (Figure 6) growth due to the company’s dominant market share and track record.

New shareholder should boost market confidence and lead to growth opportunities.

  • On Sep 21, BRC Asia agreed to allot 31,015,000 new ordinary shares at an issue price of S$1.48 to Hong Hong Leong Asia as a shareholder may bring about future synergies such as expanding BRC Asia’s footprint outside of Singapore.

Construction sector on the road to recovery.

  • According to Singapore’s Ministry of Trade and Industry (MTI), Singapore’s economy expanded by rising steel prices caused by COVID-19 restrictions. According to Fitch, global steel prices are expected to decline in 2022 which would help boost the construction sector moving forward.

BRC Asia - Earnings Forecast Revision

  • We adjust our earnings forecasts of BRC Asia slightly for FY21-23F, on the back of strong demand for construction activities in the medium term, supported by public sector projects. We forecast FY21-23F revenue at S$1,170m, S$1,246m and S$1,139m while we forecast FY21-23F net profit at S$42.1m (S$42.5m), S$56.7m (S$46.8m) and S$62.0m (S$47.7m).

BRC Asia - Valuation & Recommendation

Llelleythan Tan Yi Rong UOB Kay Hian Research | 2021-09-21
SGX Stock Analyst Report BUY MAINTAIN BUY 1.76 DOWN 2.000