CGS-CIMB has reiterated its “buy” call on BRC Asia with a lowered target price of $1.35 from $1.55. The recommendation comes despite BRC Asia’s core net loss of $6.4 million recorded for the 3QFY19/20 ended June.

“BRC’s core net loss of $6.4 million in 3Q20 was narrower than our forecast of $10 million loss, mainly due to strong cost control,” say analysts Ong Kang Chuen and Caleb Pang in a report dated Aug 6.

BRC Asia’s revenue saw a decline of 83% y-o-y to $36.6 million due to a compulsory halt in work orders during the circuit breaker period.

Although this was followed by a gradual resumption to work, the lower revenue was insufficient to cover continuing expenses, which resulted in the net loss position during the quarter.

Ong and Pang say they continue to “like” the company for its dominant market-share position and strong order book as at end 3Q20.

As at end June, BRC’s order book, which contains a large proportion of government projects, came in at $934 million.

Despite that, the analysts have lowered their FY20 earnings per share (EPS) forecast by 32.4%. 

“This is due to the slower resumption of construction activity post circuit-breaker (CB); hence we now project BRC to remain loss-making in 4QFY20.” they say. 

They noted that construction activities remained low in July, but are set to improve from Aug onwards.

Ong and Pang have also lowered their EPS forecasts for FY21-22 by 3.6-8.5%.

On Aug 6, Singapore’s Multi Ministry Task Force said it will complete testing for all workers in dormitories, except those in quarantine. Education Minister Lawrence Wong also added that by the end of August, the task force expects 90% of workers to be able to resume work. 

Nevertheless, the analysts said given labour constraints and new conditions for working in the post-CB era, they believe construction activities will enter a “new normal” of lower productivity, until a vaccine is widely available. “It will take some time for construction activities to return to pre-Covid levels.” they added. 

Despite the near-term disruptions, Ong and Pang noted the company’s trade receivables declined to $49.6 million, which was 72% lower q-o-q. 

This shows good collection in 3Q as BRC emphasised safeguarding itself against receivables risk. BRC is still carefully monitoring the situation, and will cease supply of materials to customers at risk of default. BRC is also said to have trade credit insurance in place against an estimated 70% of its receivables.

As at 1.32pm, shares of BRC Asia were trading at $1.09, with a FY20 price-to-book ratio (P/B ratio) of 1.03 and dividend yield of 6.96%.