UOB Kay Hian (UOB) analysts Llelleythan Tan and Heidi Mo have downgraded BRC Asia BEC (BRC) to “hold” from “buy” as they see the stock as being “fully valued” at its current share price. As at Tan and Mo’s report on Sept 10, BRC Asia was trading at $2.29.
Referring to BRC’s results for 3QFY2024 and 9MFY2024 ended June 30, the analysts note that the 3Q yielded a “soft” set of results that dragged its performance for the nine-month period.
BRC’s financial performance fell short of Tan and Mo’s expectations. Its 9MFY2024 revenue of $1.14 billion and core net profit of $56.1 million came in at 65.8% and 63.3% of their full-year estimates respectively. BRC’s 9MFY2024 revenue fell by 3.1% y-o-y while its core net profit, which excluded a $16.5 million gain from the disposal of its Maldives associate, rose by 15.0% y-o-y.
The weaker performance can be largely attributed to a soft 3QFY2024 with revenue and core net profit declining 17% y-o-y to $381.7 million and 22% y-o-y to $17.6 million, respectively. The analysts recognise that this was “primarily due to slower project execution and deliveries, as delays across both the private and public sectors came on a shortage of engineering resources and delays in inspection processes.” While 3QFY2024 revenue increased by 6.3% q-o-q, core net profit fell 17.6% q-o-q as the firm made a product-mix change towards lower-margin products, they note.
Looking ahead, UOB notes that the “short-term outlook shows promising signs of recovery”, and in early 4QFY2024, BRC say positive signs of operational improvements evidenced by a steady improvement in labour shortages. This has ensured that projects continue to gain traction resulting in improved project offtake rates. According to the Ministry of Trade and Industry (MTI), Singapore’s construction sector is poised to see a 4.3% y-o-y expansion. BRC is capable of taking advantage of this growth in the construction sector given their expertise in crucial infrastructure segments. UOB reckons that BRC’s long-term outlook is positive, supported by a solid overbook valued at $1.32 billion at the end of 3QFY2024. Alongside an accumulation of delayed projects and a dynamic pipeline, UOB expects “stronger earnings growths moving into 4QFY2024.”
With lower volumes and changes in BRC’s margin estimates, Tan and Mo have lowered their core earning estimates by 11% to 16% for FY2024 to FY2026. The analysts’ new core patmi for FY2024 has been lowered to $78.9 million from $88.7 million before. Their new core patmi estimates for FY2025 and FY2026 have been lowered to $83.7 million and $86.2 million respectively from $98.5 million and $102.2 million previously.
The analysts have also lowered their target price to $2.29 from $2.42 previously. The new target price is based on the same P/E multiple of 7.5 times for FY2025, pegged to BRC’s long-term average mean.
As at 10.49am, units in BRC Asia are trading 2 cents higher or 0.89% up at $2.28.
