Excerpts from CGS-CIMB report
Analysts: Ong Khang Chuen, CFA & Kenneth Tan
BRC Asia Ltd
A slower start to the year, as expected
|■ 1QFY9/23 NP of S$12m (-12% yoy) roughly in line with expectations. We expected a slower start to FY23F due to “Heightened Safety” period in SG.
■ Valuation remains attractive at 6x CY24F P/E while offering c.10% yield. Reiterate Add and TP of S$2.50.
1QFY9/23: net profit largely in line with expectations
● BRC reported a 1QFY9/23 net profit of S$11.7m (-12% yoy), forming 14.3% of our FY23F forecast and 13.5% of Bloomberg consensus’.
|"We expect a meaningful rebound in steel rebar demand in 2HFY23F as near-term kinks are ironed out, given that the industry orderbook is still at a multi-year high."|
We deem the results roughly in line with expectations. Note that 1Q is a seasonally weaker quarter for BRC given the rainy season and year-end festivities – its 1Q22 net profit made up 14.8% of FY22.
● We had expected a slower start to FY23F given the implementation of a “Heightened Safety” period from Sep 22 to Feb 23 by the Ministry of Manpower.
● We also understand that the construction industry is currently more focused on delivering projects that are closer to completion (given newsflows surrounding BTO project delays; flushing out pre-pandemic orderbooks that are currently loss-making etc.); these have resulted in a temporary weaker offtake for steel rebars that BRC supplies.
|We expect a meaningful rebound in demand in 2HFY23F
● We expect a meaningful rebound in steel rebar demand in 2HFY23F as near-term kinks are ironed out, given that the industry orderbook is still at a multi-year high.
● Our thesis is supported by Building and Construction Authority (BCA), which forecasts a further recovery in nominal construction output to S$30bn-33bn in 2023F (2022:S$30.2bn), potentially marking the highest level of construction output in 7 years.
● BCA also forecasts demand for steel rebars to come in at 1.2m-1.4m tonnes (flat to +17% yoy growth), an improvement from 1.2m tonnes in 2022.
● The Ministry of Trade and Industry (MTI) highlighted that the construction sector was still operating 19% below pre-Covid levels in 4QCY22.
Remain positive on sector outlook; reiterate Add with TP of S$2.50
● Reiterate Add and TP of S$2.50, still based on 1.6x CY23F P/BV (GGM: ROE 18.1%, cost of equity 11.8%, terminal growth 0.5%).
● BRC currently trades at an attractive valuation of 6.2x FY24F P/E and 10% dividend yield, we think 1H weakness could present an opportunity for investors to accumulate.
● Rerating catalysts include stronger recovery in Singapore’s construction activity levels. Downside risks include counterparty credit risks and weaker construction demand due to a global slowdown, which could negatively impact volume growth of BRC.
Full report here ....