BRC Asia - Phillip Securities 2021-12-09: FY21 Profit At Record High

BRC ASIA LIMITED (SGX:BEC)

BRC Asia - FY21 Profit At Record High

BRC Asia (SGX:BEC)'s 4Q21 earnings of S$10.2mil was above our estimates, at 26.9%. The beat came from higher deliveries and the reversal of impairment loss from its associates. FY21 profit of $49.7mil is a record high for the group.
BRC Asia's total dividend for FY21 stands at S$0.12 per share, exceeding our forecast of S$0.08, reflecting management’s confidence in the construction recovery.

BRC Asia's net gearing inched up to 1.17x from 1.12x as working capital needs increased due to higher inventory costs. We expect net gearing to remain elevated in FY22e-23e to support inventory in anticipation of higher expected deliveries.
Maintain BUY call on BRC Asia with higher target price of S$1.84, from S$1.79.

In spite of the resurgence of COVID-19 in Singapore, BRC Asia's order deliveries went up as disruptions to construction schedules were minimised with more frequent testing. The beat also came from share of results of associates, which generated a profit of $1mil, reversing the $14.5mil loss last year as BRC Asia reversed the impairment loss as a result of improved occupancy in both its hotel and resort following the easing of travel restrictions in the Maldives.
The total contracts awarded for Jan-Sept 2021 in the construction sector were $21.7bn, surpassing 2020’s $21bn. BRC Asia has sizeable amount of projects in the pipeline, with its order book steady at about S$1.2bn. We estimate that half of the order book will be fulfilled within the next 12-15 months.

On top of the interim dividend of S$0.04 already paid, BRC Asia has proposed a final dividend of S$0.04 per share and a special dividend of S$0.04, bringing full-year dividend to S$0.12 per share. This represents approximately 61% of earnings, translating into an 8.1% yield. See BRC Asia's Dividend History.

With steel prices easing slightly in the last few months, provisions for onerous contracts also eased, resulting in gross profit margins improving q-o-q. Total provisions for impairment loss on trade receivables was S$2.7mil in FY21, or 2.3% of total sales. This was lower than our 3% estimate despite the continued challenges faced in the construction industry.

BRC Asia's total borrowings increased by another S$40.9mil in 4Q21 as higher sales necessitated higher working capital. Despite steel prices easing slightly in the last few months, they remain elevated. We therefore expect inventory costs and net gearing to remain high in FY22-23e.

With higher vaccination rates (~85%), we believe the government will progressively loosen border restrictions to alleviate the tightness in the labour market. The number of seasonally adjusted job vacancies in the overall economy rose to an all-time high of 92,100 in June 2021. The number of vacancies is especially acute in sectors which rely most on foreign workers, such as construction and manufacturing.
In the first half of 2021, the total number of foreign workers declined by 32,600. The seasonally adjusted job vacancy to unemployed person ratio rose to 1.63 in June 2021, exceeding 1 for the first time since March 2019. We therefore believe the government will progressively facilitate the safe inflow of new foreign workers to alleviate the manpower crunch while ensuring that the risk of COVID-19 importation is well-managed to protect public health. The Ministry of Health recently announced the easing of measures for travellers from various countries, including Malaysia.

Based on advance estimates from the Ministry of Trade and Industry, the Singapore economy grew by 0.8% on a q-o-q seasonally-adjusted basis in the third quarter of 2021, a reversal from the 1.4% contraction in the preceding quarter. The construction sector shrank by 0.4% q-o-q seasonally adjusted, improving from the 2.4% decline in the previous quarter.
The Building and Construction Authority expects construction demand to improve to S$23-28bn in 2021 from S$21bn last year. The public sector is expected to contribute 65% of the new contracts or S$15-18bn, to meet stronger demand for public housing and infrastructure.
BRC Asia also forecasts that average construction demand in 2022-2025 will be S$25-32bn per year, excluding the development of Changi Airport Terminal 5 and expansion of the two integrated resorts. The public sector is expected to contribute 56% to the demand.
As our forecasts have not included these projects, there is upside if they go live. In the near term, projects in the pipeline that will likely support the group’s growth are the Singapore Science Centre’s relocation, the Toa Payoh integrated development, Alexandra Hospital redevelopment, Bedok’s new integrated hospital, Phases 2-3 of the Cross Island MRT Line and the Downtown Line’s extension to Sungei Kadut.

We maintain our BUY call on BRC Asia with a higher target price of S$1.84, from S$1.79.
We revise BRC Asia's FY22e earnings estimate by 39% while earnings per share increased by 12.5% as we factor in the higher share float and forecast higher order deliveries in FY22. Our target price for BRC Asia is based on 11x FY22e P/E, still at a 15% discount to the 10-year historical average P/E, on account of the uncertain environment.
Catalysts expected from higher foreign-worker inflows to Singapore.
See

Terence Chua Phillip Securities Research | https://www.stocksbnb.com/ 2021-12-09

SGX Stock Analyst Report BUY MAINTAIN BUY 1.84 UP 1.790