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PhillipCapital downgrades BRC Asia to ‘accumulate’ at unchanged target price due to recent price gain

Douglas Toh
Douglas Toh • 2 min read
PhillipCapital downgrades BRC Asia to ‘accumulate’ at unchanged target price due to recent price gain
BRC Asia looks to benefit from the construction industry's healthy outlook in 2024. Photo: Albert Chua/ The Edge Singapore
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PhillipCapital has downgraded its call on BRC Asia BEC -

from “buy” to “accumulate” at an unchanged target price of $1.99, following the company’s 1QFY2024 ended Dec 31, 2023 earnings and its subsequent price gain.

The discounted cash flow (DCF) target price generates an “attractive” return on equity (ROE) of 18.6% and delivers a dividend yield of 8.2% in FY2024, says analyst Peggy Mak in her Feb 13 report.

For 1QFY2024, the steel supplier reported a profit of $17 million, a 47% y-o-y increase but a 36% q-o-q decline. This came on the back of a recovery in volume from the low base in the year before. The higher profit also came from the absence of losses from its 17%-owned Maldives hotel assets and lower interest expenses.

Revenue for the three-month period also saw a 17% y-o-y surge but an 11% q-o-q decrease, amounting to $399 million.

Mak notes that for the period, net profit came in at 20% of her FY2024 estimates. 

“This is typically the lull quarter for construction output. Revenue jumped 17% y-o-y due to low volume in the year earlier, as the labour crunch affected activities and order deliveries. We estimate higher volume was partly offset by a 17% lower average selling price (ASP) for steel rebars,” writes Mak.

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She adds that as net gearing improved to 0.46 times, net profit similarly improved from the absence of associate losses, and lower interest expense.

Another plus is the group’s relatively flat net debt, which stood at $207 million as at the end of Dec 31, 2023 versus $196 million as at Sept 30, 2023.

The analyst attributes this to a continued “healthy working capital and no collection stress”, while the lower steel prices have also freed up trade financing needs.

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Gross margins for the period were 2% points higher y-o-y, which Mak notes “reflects a higher utilisation rate” at BRC Asia’s fabrication plant and possibly lower freight costs.

Looking ahead, Mak remains optimistic about BRC Asia’s prospects.

She writes: “Construction output is expected to rise in 2024, as construction projects awarded in 2023 (+13.4% y-o-y) translate into job completion. We believe steel prices have bottomed. Together with the strong Singapore dollar, we expect BRC Asia to enjoy higher margins from FY2024. BRC Asia could also book a gain of $14 million if the Maldives hotel assets are sold.”

As at 1.10 pm, shares in BRC Asia are trading at one cent lower or 0.53% down at $1.86 on Feb 14.

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