With Covid-19 restrictions eased, Singapore has boosted public housing to address rising demand. Around 63% of pandemic-delayed Built-to-Order (BTO) projects were completed by March, with the number of these projects expected to reach 150 by 2025, up from around 100 in February. The availability of new government contracts signals positive prospects for construction firms.

The healthy pipeline of construction projects in the city-state saw steel prices record a marginal quarterly increase as seasonal activity strengthened. Global construction consultancy Linesight notes that steel rebar prices increased by 0.6% q-o-q in 2Q2023. While steel rebar prices were still down by 25% y-o-y, steel flat prices have remained relatively high owing to demand from other industries and will be held by improving domestic demand in the coming quarter, adds Linesight.

Despite the overall sluggish growth of Singapore’s economy — hamstrung by a slump in manufacturing activity — the construction sector continued its strong post-Covid-19 recovery in the first half of the year, expanding by 6.6% and 6.9% on a y-o-y basis in 2Q2023 and 1Q2023 respectively, after recording 6.7% y-o-y growth for the full-year 2022.

With the Housing Development Board (HDB) on track to deliver 100,000 flats between 2021 and 2025, much of BRC Asia’s order book will be fulfilled through public sector contracts. This year, the Building and Construction Authority (BCA) projected that total construction demand in Singapore would fall between $27 billion and $32 billion, with public projects expected to make up 60% of this demand. The proportions of public and private sector allocations have remained relatively similar since 2021.

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BRC Asia’s CEO Seah Kiin Peng says in an interview with The Edge Singapore that the recent tendency towards public projects is “symptomatic” of the government balancing construction resources given the weak private demand amid a high-interest environment. “Throughout this period [since the onset of the pandemic], one thing has remained constant — government support through land sales and projects,” he says.

He adds that HDB and Land Transport Authority (LTA) were frontrunners in consistently granting new contracts. This paved the way for BRC Asia to achieve record earnings of $90.2 million in FY2022, a 92% increase from the previous FY2021.

However, Seah says that the push to recover lost time resulted in less experienced workers being hired for construction, leading to an unfortunate spate of workplace fatalities. The Ministry of Manpower (MOM) implemented new heightened safety measures from September last year to the end of May as an “urgent call” for employers to prioritise safety.

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While he acknowledges the necessary emphasis on safety, he notes these constraints paused projects and decelerated the industry again. Since exiting from the heightened safety period, he observes that there has been a “marked improvement” in site movement. But a full recovery is expected to take time. “It is a start, but I don’t think there is going to be an explosion in our financial performance because even if the pipeline is full, even if the jobs are still there, it’s going to take some time before there are enough dormitory vacancies for employers to bring in the skilled labour required for the construction industry.”

Offering supply chain integration

Beyond being Singapore’s primary landlord and infrastructure planner, the government’s impact on the sector extends further. HDB was an early adopter of prefabrication in the 1980s, driving change in construction manufacturing processes. For every HDB residential project today, the statutory board estimates that precast components constitute some 70% by volume of the entire structural concrete used during the construction stage.

Precast technology enables building components like reinforced concrete — concrete embedded with steel — to be manufactured off-site before it is delivered and assembled on-site. HDB says this production method provides “distinct advantages” such as better quality control, a safer work environment, and lower manual and unskilled labour dependency.

The Singapore government’s shift in favour of precast technology caused construction supply chains to evolve in line with the new processes. The move towards this manufacturing preference means that components comprising steel rebar, concrete, and even fittings are fabricated off-site, Seah adds. The CEO notes that this sets Singapore’s construction industry apart from Southeast Asian nations and even developed East Asian countries like China, Japan, and South Korea.

BRC Asia has moved from supplying its prefabricated products directly to construction sites to supplying the same products to construction firms like Hong Leong Asia (HLA). This key local player in ready-mix concrete stands as the second largest shareholder with just over a 20% stake in the construction steel company. “We were a large enough steel supplier with the right position and earning ability in the market that was able to provide stable earnings for them,” he adds.

Seah adds that HLA’s investment in BRC Asia to complete its supply chain has deepened the relationship between the two construction players and added a dimension to the possibility of future collaborations.

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“We have always had them as a customer in [the concrete] space, and they have a good track record with us, but the investment has taken the relationship beyond just being customer and supplier,” he says. “It has become easier for us to venture into projects with HLA. Their comfort levels with us have increased now that they sit on our board and join our discussions.”

Seah says he does not see HLA’s stake posing further cyclical risks to BRC Asia. The company does not receive earnings from the concrete manufacturer.

HLA became a substantial shareholder in August 2021 after subscribing to new shares at $1.48 each. It raised its stake subsequently from 12.7% to 20%. HLA’s CEO Stephen Ho and executive director Kwek Pei Xuan sit on BRC Asia’s board.

Since then, HLA has made some gains on its investment, and if sell-side analysts covering BRC Asia are right, there is more room for growth. Their target prices range from $1.73 in the case of UOB Kay Hian’s Llellythan Tan to as high as $2.20, according to CGS-CIMB’s Ong Khang Chuen. Despite the positive outlook, BRC Asia shares have dropped 7.22% year to close at $1.67 on Aug 29, valuing the company at 5.97 times historical earnings with a yield of 6.59%.

BRC Asia’s largest shareholder remains Esteel, an entity controlled by You Zhenhua from China. You is the chairman and executive director of iron ore trader Prosperity Steel United Singapore, which has a significant regional presence in the iron and steel-related businesses.

Looking beyond Singapore

With You at the helm, it is easy to imagine that BRC Asia’s growth will have some regional angle. BRC Asia’s 2018 acquisition of Lee Metal, another steel supplier, was meant to position itself more dominantly to weather future downturns.

Seah explains that tracing the pricing index for steel shows relatively “transparent” global prices and highlights the “wild swings” that the commodity has shown in prices over the past three years. He attributes some of this volatility to geopolitical instability but emphasises China’s “opaque” policymaking.

“The most recent price volatility was driven by China’s reopening and the heightened expectations around its recovery — versus the reality,” he says. “When China announced they were reopening towards the end of last year, prices went up in anticipation. But in July, we still saw Beijing pledge to step up stimulus measures.”

Steel is not the only commodity, let alone asset class, affected by the inability of “outsiders” to analyse and forecast Beijing’s decisions rationally, he adds. “There has never been an open consultative process that can be dissected in China.”

With the amalgamation of Lee Metal into BRC Asia, finalised in April this year, the company now commands a market share surpassing 50% in Singapore. This position offers some protection against external shocks and price fluctuations. The expanded BRC Asia benefits from economies of scale, enhancing its ability to negotiate raw material prices with steel mills, among other advantages.

Given this standing, Seah notes that competition laws are unlikely to allow BRC Asia to make any further acquisitions within the country. “I understand that we will not be able to buy any [other companies],” he adds candidly.

Inorganic or otherwise, growth will likely be achieved in foreign markets. Australia, for example, is a key region in which BRC Asia has always been interested. The company has been making “active attempts” to expand into the country since the pandemic ended, although Seah declined to disclose specifics.

Meanwhile, BRC Asia’s manufacturing plant in Malaysia, which mainly services projects in Singapore, could expand its business of supplying local projects in Johor Bahru and Malacca. “As the Malaysian economy stabilises and expands over time, some of our main shareholders will implement their plans in Malaysia and will need steel supplied, so our operations there will grow,” adds Seah.

BRC Asia steels for recovery, eyes region for further growth

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