BRC Asia is riding on industry tailwinds, with its latest net profit doubling y-o-y, say CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan

“BRC's 1HFY2022 net profit rose to $39.8 million (up 108% y-o-y), above expectations at 77% of our FY2022F. Revenue grew 61% y-o-y to $793.3 million on the back of higher deliveries and higher steel prices (up 40% y-o-y),” write Ong and Tan.

Meanwhile, 1HFY2022 gross margins also expanded 0.6% pts y-o-y to 8.7%, due to a net reversal of $1.8 million provision for onerous contracts during the period. BRC proposed an interim dividend of 6 cents, up from 4 cents this time last year, representing 3.6% dividend yield.

In a May 12 note, Ong and Tan are maintaining “add” on BRC Asia with a raised target price of $2.50 from $2.10 previously. The new target price represents a 51.5% upside.

Ong and Tan expect further construction recovery in FY2022. “According to the Ministry of Manpower, helped by the progressive lifting of border restrictions, non-resident employment, or foreign workers, picked up pace in 1QFY2022.”

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The ministry expects this trend to continue in 2QFY2022, helping to alleviate labour market tightness, especially in sectors such as construction which have had to deal with scarce labour and delayed projects, write the analysts.

They add: “We believe this paves the way for further recovery in the construction activities in coming quarters, benefiting building material players like BRC.”

BRC to achieve 48% net profit growth

In addition, BRC is navigating well through macro challenges, say the analysts. “In our panel discussion with building material players last week, we understand that while higher commodity, freight and energy costs have led to higher input costs for building material players year-to-date (y-t-d), they have generally been able to pass on the higher costs.”

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Ong and Tan believe BRC’s “strong market share position” also provides it with stronger procurement power. This will help it navigate current pricing volatility in the steel market and uphold margins. “We now forecast BRC to achieve 48% net profit growth to $69.8 million for FY2022.”

They add: “We see continued tailwinds for BRC as construction activities recover further. We raise our FY2022-2024 EPS by 32.7%-35.5% on the back of higher deliveries and margin assumptions.”

With strong free cashflow generation, Ong and Tan believe BRC can potentially offer dividend yield of 9%, assuming a 60% dividend payout ratio.

Re-rating catalysts include a faster-than-expected pace of recovery in Singapore construction activities, while downside risks include counterparty credit risks, given the weakened financial health of the industry due to the Covid-19 pandemic.

As at 11.54am, shares in BRC Asia are trading flat at $1.67.

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