Brokers’ take: DBS initiates ‘buy’ on BRC Asia with S$2.40 target
Alvina Soh
BRC Asia will likely be a key beneficiary of a construction sector recovery, noted DBS Group Research as it initiated coverage on the steel reinforcement solutions provider with a “buy” call and a target price of S$2.40.
The target price implies a 15 per cent discount to BRC’s 5-year historical mean, which the research house said is in view of global economic uncertainty. Its valuation is based on a 1-year-forward price-to-earnings ratio of 8.2 times.
In a report on Wednesday (Jun 8), DBS projected 16 per cent higher rebar sales volumes and a “whopping” 40 per cent growth in revenue for BRC in 2022.
This comes on the back of BCA’s (Building and Construction Authority) expectations of a recovery in the construction sector, with higher construction output spurring demand for steel reinforcement solutions.
Highlighting BRC’s strong sales volume growth and higher market share after the acquisition of Lee Metal, DBS believes that BRC’s stronger pricing power will translate into cost synergies and therefore, forecasts the group’s gross margins to increase to 8.7 per cent in 2022 to 2024, from 7 per cent in 2021.
The research group added that BRC is “well-positioned” to ride the growth of the construction industry with its dominant market share of 60 to 70 per cent.
“Customers with big projects are more inclined to choose BRC because of its ability to handle large scale projects, which places the group in a good position to benefit from the upcoming ramp up of HDB (Housing and Development Board) projects, and other major projects such as the Changi Airport Terminal 5 and expansion of the integrated resorts,” said DBS.
As at 10.40 am on Wednesday, shares of BRC were trading at S$1.77, up S$0.02 or 1.1 per cent.
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