Steel mesh manufacturer BRC Asia is “in line with expectations” for 2QFY2021 and is “as sturdy as steel”, says UOB Kay Hian Research analyst Lucas Teng in a May 11 note.
Teng is maintaining his “buy” call on BRC Asia with a target price of $2.00, which represents a 29.7% upside.
“[The] outlook for public sector construction projects continues to show a steadfast demand, though the risks of project delays remain,” writes Teng.
“BRC Asia’s (BRC) reported 2QFY2021 net profit of $9.5 million (-4% y-o-y) forms 23% of our full-year estimates, in line with expectations. The group’s net profit was steady on a q-o-q basis (-1% q-o-q),” adds Teng. An interim dividend of 4 cents was declared.
BRC Asia designs, manufactures and markets steel meshes under the BRC brand name. The company's products include non-standard and customised meshes, a wide range of prefabricated products including beams and column cages, complete prefabricated beam and column reinforcement, staggered meshes, twin wire meshes, and pile cap cages.
SEE:BRC Asia sees 1H21 earnings fall 15% to $19.2 mil due to provisions for onerous contracts
Teng notes that recovery is still in progress, as 2QFY2021 revenue improved to $279 million (+21% y-o-y, +31% q-o-q) with higher contract values from rising steel prices.
There was a provision for onerous contracts amidst a sharp increase in global steel prices, amounting to about $29 million in 1HFY2021.
The group’s orderbook remains at a high of $1.1 billion. Gross margin of 5.8% in 2QFY21 dipped mainly due to the provisions, says Teng, which can be reversed when sales contracts deliveries are executed. The group’s financial position has improved, with net gearing levels at 21% in 1HFY2021, compared to 76% in FY2020.
However, the recent outbreaks of Covid-19 cases could threaten the progress of construction activities.
BRC Asia noted that construction activities, currently at 75-80% of pre-Covid-19 levels, could be slowed temporarily.
That said, Singapore has continued to provide support for the construction sector. Recent support measures include flexibility on recruitment of foreign workers from China to deal with the manpower crunch, extension of time to complete public sector construction projects, as well as provision of 0.1% of public sector contract sum for every month of construction delay to facilitate quicker disbursement of cost sharing in non-manpower related expenses.
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The Building and Construction Authority (BCA) expects total construction demand in 2021 to range from $23 billion to $28 billion, with public sector projects contributing 65% of new projects amid an anticipated stronger demand for public housing and infrastructure projects.
Public housing projects usually require steel meshes and other steel components which are offered by BRC. However, manpower shortages and supply chain disruptions have affected the Build-To-Order (BTO) projects. About 85% of current BTO projects are around six to nine months behind schedule, according to the Ministry of National Development (MND).
As at 1.57pm, shares in BRC Asia are trading flat at $1.54.
