UOB Kay Hian analysts Llelleythan Tan Yi Rong and Heidi Mo in their April 15 note have kept their "buy" call for BRC Asia BEC .
As the steel supplier is seen to enjoy steady earnings growth thanks to an improving construction sector coupled with a generous dividend yield of 9%, they have raised their target price from $2.07 to $2.42.
BRC Asia's 1QFY2024 earnings of $17.1 million, up 46.5% y-o-y, came in above the expectations of Tan and Mo. Revenue in the same period was up 17% y-o-y, despite a seasonally slow quarter.
"The strong top and bottom-line growths were largely due to a low base in 1QFY2023 from Singapore’s Heightened Safety period depressing delivery volumes while also driven by the ongoing recovery in domestic construction demand," reason the analysts, referring to the months when the tempo of construction activities slowed because of a spate of accidents.
Even so, BRC Asia was able to enjoy better margins which can be attributed to higher volumes and utilisation rates. Certain reversals of provisions for onerous contracts made previously helped as well.
The analysts point out that BRC Asia was able to maintain its dominant market share, as indicated by its order book of around $1.3 billion as of end of March, versus the preceding quarter ended December.
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"We expect the group to deliver half of its current order book in the next 3-4 quarters as domestic construction activity continues to recover," state Tan and Mo.
Citing government statistics, the analysts point out the construction demand in Singapore this year will reach up to $38 billion, exceeding last year's $33.8 billion.
Growth is driven by the strong pipeline of new public housing while long-term growth will be underpinned by big infrastructure projects such as Changi Airport Terminal 5, Tuas Mega Port and the Cross Island MRT, the analysts say.
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They have raised their FY2024 earnings estimates from $76.9 million to $88.7 million. They now see earnings for FY2025 and FY2026 to reach $98.5 million and $102.2 million, up from $84.3 million and $87 million respectively.
Along with the higher earnings projections, they have accorded a slightly higher valuation multiple of 7.5 times earnings, up from 7 times, to derive the higher target price of $2.42 from $2.07.
"In our view, favourable tailwinds, expected earnings growth, along with BRC's attractive 9% dividend yield would help support share price performance in 2024," write Tan and Mo.
BRC Asia shares gained 0.51% to change hands at $1.96 as at 10.29 am.
