Brokers' take: CGS-CIMB raises TP for BRC Asia to S$2.10, positive on construction recovery

CGS-CIMB expects BRC Asia BEC to continue riding on the construction sector's recovery come FY2022, as the easing of border restrictions should see more foreign workers return to Singapore to alleviate the labour shortage situation.

In a research note on Monday (Dec 6), analyst Ong Khang Chuen maintained "add" on the stock, and raised its target price (TP) to S$2.10 from S$1.90 previously.

The new TP is based on 1.53 times the analyst's estimates for calendar year 2022's price-to-book value ratio.

Shares of BRC closed lower by S$0.01 or 0.67 per cent at S$1.49 on Tuesday (Dec 7).

Ong noted the steel reinforcement solutions provider had outperformed analyst expectations for its fourth-quarter financial results, posting a net profit of S$17.7 million. This beat the analyst's FY2021 estimates by 18 per cent.

"Due to easing steel prices, BRC recorded lower provision for onerous contracts in Q4 FY2021 of S$4.9 million, which helped its gross processing margin improve to 7.4 per cent," Ong added.

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On the whole, Ong said he is cautiously optimistic on the construction sector's recovery.

Though Singapore's construction output remained at about 25 per cent below pre-pandemic levels in July to September, he expects more foreign workers to enter Singapore in the coming months as border measures continue to ease.

This would alleviate the labour shortage situation towards the second half of 2022, said Ong, adding that BRC also expects the work pace to pick up in the coming quarters as builders rush to fulfil the sizeable number of outstanding construction contracts.

Separately, with Hong Leong Asia now owning a 20 per cent stake in BRC, Ong expects to see greater collaboration between the 2 companies, particularly in the area of automation within prefabricated prefinished volumetric construction (PPVC) building technology.

"There could also be potential joint overseas expansion opportunities in China or South-east Asia, where trends towards improving productivity in the construction sector are emerging," he added.

Taken together, Ong raised his net profit forecasts for BRC for FY2022-23 by 14 to 17 per cent.