Brighter outlook for FY22F

■ Riding on construction recovery, BRC Asia reported a strong set of 4QFY21 results. FY9/21 net profit of S$47.0m was 131% higher yoy.

■ With easing border restrictions, we expect more inflow of foreign workers in the coming months, which could aid further recovery in construction output.

■ Reiterate Add, with a higher P/BV-based TP of S$2.10.

A strong set of 4QFY21 results

Riding on the construction sector recovery, BRC reported a net profit of S$17.7m in 4QFY21 (4QFY20: S$0.2m), above expectations at 118% of our FY21F. Due to easing steel prices, BRC recorded lower provision for onerous contracts in 4QFY21 of S$4.9m (3QFY21: S$11.5m), which helped its GPM improve to 7.4%. Key positive was the declaration of an 8 Scts final dividend, bringing FY21 total dividend to 12 Scts (8% yield).

Construction output to recover as foreign workers return

Singapore’s construction output remained at c.25% below pre-Covid-19 levels in 3QCY21, mainly due to labour shortages, but we are cautiously optimistic on recovery ahead. With easing border restrictions, BRC expect more foreign workers to enter Singapore in coming months, alleviating the labour shortage situation towards 2HCY22F. Covid-19 disruptions are also increasingly minimised, with the workforce getting to grips with the new normal. BRC expects the work pace to pick up in the coming quarters as
builders rush to fulfil the sizeable number of outstanding construction contracts.

Welcoming Hong Leong Asia as its 2nd largest shareholder

On 14 Oct, through a combination of new share placement and married deals, Hong Leong Asia (HLA SP, Add, TP: S$1.05, CP: S$0.81) acquired a 20% stake in BRC. We see synergistic collaboration between both parties, which are market leaders in the supply of their respective type of building materials (HLA in ready-mix and precast concrete, BRC in reinforced steel). We see greater collaboration between both
companies to increase automation opportunities within the prefabricated prefinished volumetric construction (PPVC) building technology. There could also be potential joint overseas expansion opportunities in China or Southeast Asia, where trends towards improving productivity in the construction sector are emerging.

Reiterate Add with higher TP of S$2.10

We continue to like BRC as a proxy to Singapore’s construction sector recovery, given its market leadership in the reinforced steel industry. Our net profit forecasts for FY22-23F were raised by 14%-17%; our EPS forecast changes accounted for share dilution post-completion of share placement to HLA. Reiterate Add, with a higher TP of S$2.10, based on 1.53x CY22F P/BV (GGM: ROE 14.6%, cost of equity 9.7%, terminal growth 0.5%), as we roll over our valuation base year to end-2022F. Re-rating catalysts include earlier-than-expected recovery in Singapore construction activities; downside risks include
counterparty credit risks given weakened financial health of the industry due to pandemic.