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UOBKH: BRC Asia – BUY TP $2.15

1HFY22: Above expectations, Robust Earnings As Construction Resumes.

BRC reported strong 1H22 earnings of S$39.8m (+108% yoy, +43% hoh) as 2QFY22 net
profit surged to S$26.5m (+178% yoy, +99% qoq). The strong outperformance was led
by increased delivery volumes and higher steel prices. Labour supply recovery is
underway and management noted that delivery volumes will revert to pre-pandemic
levels by 1QFY23. BRC currently trades at 4.8x FY22F PE, attractive in our view.
Maintain BUY with a slightly higher target price of S$2.15 (S$2.02 previously).

RESULTS

• Results surpassed expectations. BRC Asia (BRC) reported 1HFY22 revenue and net
profit of S$793.3m (+61% yoy, +17% hoh) and S$39.8m (+108% yoy, +43% hoh)
respectively, forming 54% and 71% of our full-year estimates, surpassing our expectations.
Stronger delivery volumes coupled with elevated steel rebar prices boosted the group’s
earnings. The group declared a higher 1HFY22 dividend of 6 S cents/share, compared to 4
S cents/share in 1HFY21.

• Beneficial industry tailwinds led to a strong 2QFY22. Revenue and net profit grew by
56.1% yoy and 177% yoy respectively in 2QFY22, mainly due to higher construction
activities and elevated steel prices caused by the ongoing Ukraine-Russia conflict. We
understand that BRC has been able to pass on the higher material costs to customers. Also,
in Mar 22, Singapore started to fully reopen its international borders, allowing foreign
workers back into Singapore, easing the persistent labour supply-demand imbalance.
However, management has noted that although the influx of foreign workers would aid in
alleviating the labour shortage, many workers are also returning back home as borders get
lifted. We expect Singapore’s labour supply recovery to eventually ramp up and return to
pre-pandemic levels by 4QFY22/1QFY23.

• Resolute orderbook and diversified supply chain. BRC’s orderbook remains robust,
standing at S$1b, lower than the S$1.3b at end-1QFY22. This is due to higher delivery
volumes made in 2QFY22. We expect the group to deliver half of its current orderbook in the
next 3-4 quarters as BRC’s current production capacity of around 70% starts to ramp up.
Also, BRC’s is not affected by China’s ongoing COVID-19 lockdowns as BRC has diversified
its supply chain to regional suppliers closer to home.

STOCK IMPACT

• Still room for growth in the construction sector. The construction sector grew by 1.8%
yoy in 1Q2022 as Singapore eased its COVID-19 restrictions. In absolute terms, the sector
still remained 25.3% below its pre-pandemic levels as labour supply-demand imbalance
persists. However, with the lifting of border restrictions, Singapore’s labour shortage is
expected to ease moving forward as construction companies step up hiring, ramping up
construction activities. Also, Singapore has a strong pipeline of upcoming public sector
projects along with an increased supply in HDB launches. BRC remains a strong proxy for
Singapore’s construction sector, given its commanding market share domestically.

EARNINGS REVISION/RISK

• We increase our FY22-24 earnings by 27-53%, on the back of rising steel prices and a
better-than-expected recovery in construction demand. We increase our FY22-24 net profit
forecasts by 52.8%, 37.2% and 27.7% respectively.

VALUATION/RECOMMENDATION

• Maintain BUY with a higher target price of S$2.15 (S$2.02 previously), based on 7.0x
FY22F PE, pegged to -0.5SD of BRC’s long-term average PE (excluding outliers of >2SD at
25x).

• We reckon BRC is poised to post robust earnings in FY22, backed by favourable industry
tailwinds and higher steel prices. However, we are cautious of any potential sharp moderation
in steel prices which may lead to a reversal of provisions and supernormal earnings
thereafter. Therefore, taking a conservative view, we have pegged our target price to -0.5SD
of BRC’s long term average PE instead of its mean.

SHARE PRICE CATALYST

• Faster-than-expected recovery in construction activities.
• Complete relaxation of foreign labour restrictions.
• More public housing projects awarded.

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