UOB Kay Hian analyst Lucas Teng has maintained his “buy” call on BRC Asia with a higher target price of $2 from $1.88 previously.

The higher target price comes as BRC Asia reported net profit of $9.6 million in the 1QFY2021, which came in Teng’s expectations at 25% of his full-year estimates.

See: BRC Asia reports 24% lower 1Q21 earnings of $9.6 mil after provisions of $13.2 mil

The way he sees it, the group’s profit levels have improved “substantially” compared to 4QFY2020’s breakeven levels, in spite of provision for onerous contracts.

“The provision of onerous contracts comes amid a sharp increase in global steel prices during the quarter, leading to impairment amounting to $7.9 million,” he writes.

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Teng also notes that there is still room for growth in construction activities as they continue to pick up moving forward. The group’s results reported a reduction in sales volume as Covid-19 safe working and management measures resulted in a slower pace of work.

Furthermore, the medium-term outlook for the construction sector remains solid. The Building and Construction Authority (BCA) projects total construction demand in 2021 to range from $23 billion to $28 billion, while 2022-25 construction demand is expected to reach $25 billion to $32 billion.

“The public sector is expected to drive construction demand in 2021, projected at $15 billion - $18 billion with an anticipated stronger demand for public housing and infrastructure projects. The BCA notes that the construction demand projection excludes any potential awards of construction contracts for the development of Changi Airport Terminal 5 as well as the expansion of Integrated Resorts,” Teng writes.

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“Potential upside can come from the continuation of such mega projects, in our view. We note that the value of construction contracts awarded continues to be on the recovery trend,” he adds.

To this end, Teng has raised his earnings forecasts for the FY2021-FY2023 by 9-11% due to stronger demand for construction activities in the medium term.

Shares in BRC Asia closed 3 cents lower or 1.9% down at $1.54 on Feb 10.