Brokers’ take: UOBKH downgrades BRC Asia to ‘hold’ on lack of near-term catalysts
Michelle Zhu
UOB Kay Hian (UOBKH) downgraded its call on BRC Asia to “hold” from “buy” and slashed its target price to S$1.66 from S$2.42, after the steel solutions provider’s first-quarter results missed expectations.
The revised target reflected a sharp cut in FY2023 to FY2025 net profit estimates, following lower revenue and margin assumptions. It remains based on an unchanged seven times FY2023 price-to-earnings multiple, which is 0.5 standard deviation below BRC’s long-term average.
UOBKH’s downgrade came with the recent extension of Singapore’s heightened safety period from end-February to end-May, which its analysts foresee will lower on-site construction activities and delay project timelines.
“We opine that BRC is poised to face a weaker 9M FY2023 as these measures would have an unfavourable knock-on effect on its delivery volumes,” said the analysts on Friday (Mar 10).
They also flagged additional potential downsides from further extensions, if more companies be found to breach workplace safety measures in the future.
“With ongoing headwinds till 9M FY2023, we do not see any near-term catalysts for FY2023.”
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UOBKH, however, remains positive on the longer-term prospects of BRC, due to its strong order book and market share dominance.
Despite compressed margins across the industry amid increased competition and rising costs, UOBKH analysts said BRC would be able to pass on some of these costs, given the company’s “commanding market share and leadership position”.
Some reversals for provisions are likely to be logged in Q2 FY2023 because of moderating steel prices, they said, which would help to support the group’s falling margins.
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UOBKH is expecting half of the group’s current order book to be delivered in the next three to four quarters, as local construction activity recovers.
An anticipated increase in public Build-To-Order housing supply this year will support and boost the group’s revenue, said its analysts, considering how Housing and Development Board contracts form a significant part of BRC’s order book.
Shares of BRC were trading S$0.02 or 1.1 per cent lower at S$1.75, as at 10.07 am on Friday.
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