Excerpts from CGS-CIMB report

Analysts: ONG Khang Chuen & Caleb PANG Huan Zhong

Ending the year with a bang
■ BRC’s FY9/19 net profit of S$31.6m (+162% yoy) was in line with our expectations. BRC surprised with a higher-than-expected dividend of 8 Scts.


Share price: 


■ We expect further margin expansion for BRC in FY20F, driven by its price leadership and cost synergies (post-acquisition of Lee Metal in 2018).

■ We like BRC for its good earnings visibility riding on the recovery in home market demand. Maintain Add and TP of S$1.90.

A solid end to FY19, with a surprise special dividend declared
BRC posted S$31.6m net profit for FY19 (+162% yoy), in line with our expectations at 100% of our full-year forecast.

This was mainly driven by strong margin expansion, with BRC’s net margin improving to 3.5% in FY19 (FY18: 2.1%).

BRC declared special dividend of 3 Scts, bringing total dividend declared for FY19 to 8 Scts, implying a 59% payout ratio (5.2% dividend yield).

Pre fab YoutubeBRC's prefabricated reinforcement solutions are tailored to customers' specifications. Youtube video screenshot

Expect further margin expansion in FY20
We forecast BRC’s NPM to further expand to 4.1% in FY20F.

We expect margin expansion to come from 1) normalised industry pricing, 2) whittling down of low-margin projects from BRC’s orderbook, and 3) further cost synergies from BRC’s consolidation of Lee Metal.

Key beneficiary of Singapore construction sector demand recovery
According to the Building Construction Authority, total construction demand in Singapore grew by 14% yoy in 8M19 (2018: 23% yoy), and we expect the continued rollout of mega infrastructure projects to underpin growth over the next three years.

BRC is poised to benefit from this – it typically commands c.3% of overall construction demand (average over the past 10 years).

Orderbook remains strong at S$950m as at end-Sep; we expect BRC to report net profit growth of 21.8% in FY20F.

Strong FCF generation could sustain higher dividend payout
Given its strong cash generation ability and minimal capex needs of c.S$5m p.a., we forecast BRC to generate FY20-22F FCF of S$0.25-0.35/share, which, in our view, will improve its net gearing from 92% as of end-FY19 to 27% by end-FY22F.

We continue to see potentially higher dividend payout for FY20F, with BRC’s FCF dividend coverage ratio high at 4.0x-5.4x for FY20-22F (assuming 35% payout).

Maintain Add and TP of S$1.90
We continue to like BRC for its market leadership in Singapore’s reinforced steel industry, earnings visibility riding on the recovery in home market demand, and improving balance sheet strength.

Maintain Add and TP of S$1.90, based on 1.58x CY20F BVPS (Gordon growth model: ROE 13.7%, cost of equity 8.9%, 0.5% terminal growth).

Re-rating catalysts include stronger-than-expected margin recovery, while downside risks include a slowdown in Singapore’s construction demand and intensifying industry competition.

Full report here.

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