Brokers’ take: Phillip raises BRC’s target price amid faster-than-expected construction recovery
Helene Tian
PHILLIP Securities Research on Friday (May 20) raised its target price on BRC Asia to S$2.26 from S$1.84, following the fast recovery of the construction sector. It maintained a “buy” call on the counter.
The new target price is 8 times the brokerage’s estimates for FY2022 earnings, and is still a 15 per cent discount to BRC Asia's 10-year historical average.
The S$2.26 target price also implies a potential upside of 34.5 per cent from BRC’s Friday trading price of S$1.68 as at 3.30 pm. The counter was up S$0.01 or 0.6 per cent at the time.
The research team noted that BRC’s revenue and net profit for the first half of 2022 had exceeded expectations. The beat came from faster-than-expected recovery of the construction sector. As such, Phillip Securities raised its estimates for BRC’s FY2022 earnings by 37 per cent.
BRC also benefitted from a S$1.8 million net reversal for onerous contracts in H1 as contracts were fulfilled, though this was offset by additional provisions made for deliveries beyond the timeframe.
The brokerage expects provisions for onerous contracts to remain elevated for FY22 and FY23 earnings estimates, considering the rise in steel prices. The metal’s price has gained 18 per cent to S$1,300 per tonne since the start of the Russia-Ukraine conflict this year.
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Despite concerns over supply chain disruptions from China’s lockdowns and the rise in raw material prices, Phillip Securities believes the construction sector’s recovery remains on track with government support cushioning the impact of external factors.
This is evident during the group’s second quarter. Provision for impairment loss on trade receivables fell over 60 per cent year on year, aided by government support and the recovering construction sector.
While the brokerage anticipates net gearing to remain elevated with higher steel rebar prices, it is not overly worried about the uptick as the bulk of BRC’s short-term loans and borrowings are letter of credit and treasury receipts used to fund inventory purchase for order fulfilment.
“With an approximately 65 per cent market share in the reinforced steel industry, we continue to see BRC Asia as a key beneficiary of the construction sector recovery,” Chua said.
BRC on May 11 reported a 108 per cent increase in net profit to S$39.8 million year on year for the first half of the year. Following the rise in deliveries and steel prices, the group's revenue increased by 61 per cent year on year to S$793.3 million.
BRC also declared an interim dividend of S$0.06 for the first half of the year, which signalled the company’s confidence in the near-term outlook of the group, said Chua.
The counter closed S$0.01 or 0.6 per cent lower at S$1.68 on Friday.
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