Excerpts from UOB KH report

Analyst: Llelleythan Tan Yi Rong

Major Beneficiary When Labour Supply Returns
As the market leader in the supply of steel products in Singapore, BRC 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.

BRC ASIA 

Share price: 
$1.48

Target: 
$1.76

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.

Maintain BUY with a lower target price of S$1.76.


Pre fab YoutubeUOB KH says it understands from management that the company’s steel prices have been locked in on a rolling forward 6-9 month basis. This would help protect BRC’s margins in the face of rising steel prices caused by COVID-19 restrictions.

New shareholder should boost market confidence and lead to growth opportunities. On Sep 21, BRC agreed to allot 31,015,000 new ordinary shares at an issue price of S$1.48 to Hong Leong Asia Investments (HLA), a wholly-owned subsidiary of Hong Leong Asia and part of the conglomerate Hong Leong Group.

Concurrently, HLA has also agreed to purchase 15,000,000 shares from existing shareholders at the same issue price. Upon completion, net proceeds are expected to be roughly S$46m and HLA is expected to hold 20.0% of BRC’s total share capital.

The proposed placement would strengthen BRC’s balance sheet as BRC is planning to repay its outstanding bank borrowings with the net proceeds. Furthermore, having HLA as a shareholder may bring about future synergies such as expanding BRC’s footprint outside of Singapore.


VALUATION/RECOMMENDATION
• Maintain BUY with a lower target price of S$1.76 (S$2.00), based on the same 11.5x FY21F PE. This is pegged to its long-term average (excluding outliers of >2SD at 25x).

The drop in target price is due to the larger share base following the group’s recent placement.

We opine that the full re-opening of borders to foreign labour would cause a higher re-rating to our share price.


• Key risks: Credit risk from smaller construction players.

SHARE PRICE CATALYST
• Faster-than-expected recovery in construction activities.
• More public housing projects awarded.
• Relaxation of foreign labour restrictions.


Full report here


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