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PhillipCapital keeps estimates on BRC Asia unchanged after increase in stake by Hong Leong Asia

Felicia Tan
Felicia Tan8/31/2021 12:17 PM GMT+08  • 2 min read
PhillipCapital keeps estimates on BRC Asia unchanged after increase in stake by Hong Leong Asia
PhillipCapital's estimates were unchanged as the proposed transaction is still pending regulatory and shareholder approval.
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PhillipCapital analyst Terence Chua has maintained his “buy” call with an unchanged target price of $1.79 on BRC Asia.

This comes after Hong Leong Asia, on Aug 28, announced that it plans to invest $68.1 million to increase its stake in BRC Asia to 20%.

See: Hong Leong Asia to pay $68.1 mil to bring stake in BRC Asia to 20%

BRC, in a separate announcement, says it intends to issue 31.015 million shares to Hong Leong Asia at an issue price of $1.48 per share in a private placement to raise $45.9 million.

The proposed placement is expected to strengthen BRC Asia’s balance sheet. It is also expected to help the group navigate out of its current crisis, says Chua in an Aug 30 report.

Pro forma net gearing would then be 50.1% instead of 76.1%, assuming the completion of the placement in FY2020.

If the transaction had been completed in the 3QFY2021, net gearing would have improved to 83% from 112%.

BRC’s new substantial shareholder would also aid the group in expanding overseas in the sustainable and innovative building solutions space.

Despite the positives, Chua has kept his estimates unchanged as the proposed transaction is still pending approval from the regulators and shareholders.

He expects that the completion of the transaction should, however, be completed in around six weeks.

Chua’s target price of $1.79 remains based on 11 times FY2022 price-to-earnings (P/E), a 15% discount to its 10-year average on account of the uncertain environment.

He does, however, expect catalysts to come in the form of higher foreign-worker inflows to Singapore.

He also expects an upside to his estimates upon the higher demand for construction, as forecast by the Building and Construction Authority (BCA).

For more stories about where the money flows, click here for our Capital section

The BCA has previously estimated that construction demand will improve to $23 billion to $28 billion in 2021. The public sector is estimated to contribute 65% of the new contracts – or $15 billion to $18 billion – to meet stronger demand for public housing and infrastructure.

“As our forecasts have not included these projects, there is upside if they become live,” writes Chua.

As at 12.15pm, shares in BRC Asia are trading 2 cents higher or 1.35% up at $1.50, with an FY2021 P/B of 1.2 times and a dividend yield of 5.2%.

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