BRC ASIA LIMITED (SGX:BEC)
BRC Asia - Order Deliveries Picked Up Pace In 1Q22
- BRC Asia (SGX:BEC) provided 1Q22 (Oct 2021 to Dec 2021) performance update. Revenue, at S$357m, was +67.5% y-o-y and +6.5% q-o-q, as construction picked up pace with borders re-opened to bring in more workers. However, net profit of S$13.3m was +38.8% y-o-y but -24.6% q-o-q.
- Margins were compressed by higher steel prices. Gross margin declined 1.4ppt from 4Q21 to 6%. Net debt halved to S$175m (Sep 21: S$353m) at end Dec 21 with S$45.9m in new equity raised from Hong Leong Asia and draw down in inventory. Net gearing improved to 0.49x (Sep 21: 1.2x).
- The provision for onerous contracts was negligible during the quarter, implying that current steel prices reflect the cost imputed in the S$1.3bn orders on hand. BRC Asia hedged its steel costs which limits risks from steel price fluctuations. We believe gross margin is unlikely to fall further.
Earnings forecast revision
- We are raising BRC Asia's FY22E and FY23E earnings estimates to reflect:
- Rebound in construction work. According to BCA, total contracts awarded in 2021 was 42.2% higher at S$29.9bn (FY20: S$21.0bn), and projected 2022 orders to reach S$27-32bn. This excludes the upgrading work for the two integrated resorts estimated at S$9bn. Contract awarded will translate in construction progress in 12 to 18 months, pointing to strong construction demand from 2022.
- HDB is accelerating its building programme and is expected to launch about 23,000 units this year (on average 16,000 to 17,000 units) to play catch-up and to cope with the pent-up demand. HDB accounts for a big share of BRC Asia orders.
Steel price is near peak level.
- The high price might attract competitors. If the price stayed elevated, customers might not be able to stomach the high price, compelling BRC Asia to let go of some margins. There is room for prices to fall if infrastructure spending slows down in the developed countries. When prices fall, customers might default on taking deliveries or hold back on orders hoping for lower prices.
- Our DCF-derived target price for BRC Asia is raised to S$1.92, based on COE of 14.0% and 2% risk-free rate. This translates into EV/EBITDA of 7.9x and 6.6x for FY22E and FY23E, respectively.
- Our target price for BRC Asia takes into account higher working capital needs, in tandem with higher order deliveries in this year and next. We see net gearing rising to 0.9x at end Sep 2022. Maintain HOLD call on BRC Asia.
- See
Peggy Mak
SAC Capital Research
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https://www.saccapital.com.sg/
2022-02-17
SGX Stock
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