BRC Asia
Price target:
CGS-CIMB “add” $2.10
Phillip Securities “buy” $1.84
Strong start to FY2022
Analysts from CGS-CIMB Research and Phillip Securities Research have maintained their “add” or “buy” ratings on steel supplier BRC Asia after its earnings of $13.3 million for 1QFY2022 ended December 2021 exceeded their expectations.
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With this, CGS-CIMB analysts Ong Khang Chuen and Kenneth Tan have kept their target price unchanged at $2.10. Phillip Securities analyst Terence Chua has, too, kept his target price at $1.84.
“Our target price is based on 11x FY2022 P/E, still at a 15% discount to the 10-year historical average, on account of the uncertain environment,” says Chua.
However, despite beating expectations, Chua is keeping his forecasts for FY2022 unchanged for now, pending overall sector recovery.
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The company’s order book inched up to $1.3 billion from $1.2 billion as the construction sector continues its recovery, says Chua. “We estimate that half of the order book will be fulfilled within the next 12-15 months,” he adds.
BRC Asia is also seen to benefit from better expectations of construction demand in Singapore this year. The Building and Construction Authority has upgraded its forecasts of Singapore’s construction demand for 2022 to $27 billion and $32 billion per year from the original $25 billion and $32 billion per year, comparable with the preliminary estimates of $30 billion in 2021. “Steel rebar demand is forecasted to grow to 1–1.2 million tonnes in 2022, representing about 22% y-o-y increase,” says Chua.
“We note that BCA’s forecasts for average construction demand in 2022–2025 exclude the development of Changi Airport Terminal 5 and expansion of the two integrated resorts. As our forecasts have not included these projects, there is upside if they go live,” Chua says.
In the near term, projects in the pipeline that will likely support the group’s growth are the Singapore Science Centre’s relocation, the Toa Payoh integrated development, Alexandra Hospital redevelopment, Bedok’s new integrated hospital, Phases 2–3 of the Cross Island MRT Line and the Downtown Line’s extension to Sungei Kadut.
“With an approximately 65% market share in the reinforced steel industry, we continue to see BRC Asia as a key beneficiary of the construction sector recovery,” Chua adds.
To CGS-CIMB’s Ong and Tan, the results stood strong as the first half of the year is typically “a seasonally weaker period, given the rainy season and festive periods”.
“We also noticed a rapid deleveraging of BRC’s balance sheet during the quarter — net gearing stood at 49% as at end 1QFY2022 versus 117% as at end FY2021. As the majority of BRC’s outstanding loans are trade facilities to finance the procurement of steel raw materials to fulfil its existing sales order book, we do expect the net gearing ratio to fluctuate from quarter to quarter, but the lower gearing ratio reported for 1QFY2022 should ease some investors’ concerns over the capital structure of the group,” write the analysts in their Feb 9 report.
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The analysts are keeping their bullish outlook on the recovery of the construction sector in the FY2022, with the situation gradually alleviated towards the second half of 2022, with the government’s commitment to “press on” with bringing in much needed migrant workers.
“With a 60% market share in the reinforced steel industry, BRC will be a key beneficiary of construction activity recovery, in our view. We currently project a conservative 10% net profit growth in FY2022 for BRC to $51.5 million,” they add. — Chloe Lim and Felicia Tan
iFast Corp
Price target:
Citi “sell” $6.20
DBS Group Research “buy” $10.85
FY2021 missed expectations but growth in place
Investors could react negatively to iFast Corporation’s FY2021 results after its earnings missed consensus estimates by five percentage points, says Citi Research analyst Tan Yong Hong.
The FinTech company reported FY2021 ended Dec 31, 2021, of $30.6 million, up 45% y-o-y but reaching just 97% of Citi’s estimates and 95% of consensus estimates.
Operating profits saw a wider miss at 96% of Citi’s estimates and 94% of consensus estimates, writes Tan, driven by a 91% y-o-y decline in other income on lower government grants and investment losses.
In his Feb 15 note, Tan maintains his “sell” on iFast, with an unchanged target price of $6.20 since Jan 27, trimmed from $7.50 on Jan 8. “Given weaker-than-expected earnings, we see potential downside risks to consensus earnings estimates,” he writes, adding that iFast’s growth momentum, measured by its assets under management for 4QFY2021, was just 3.4% q-o-q. For the full year, however, assets under administration (AUA) grew 31.5% y-o-y to a record of $19 billion as of Dec 31, 2021.
Tan isn’t too thrilled by iFast’s decision to acquire UK-based BFC Bank, which is to be financed by a $103 million share placement that closed on Jan 10.
iFast expects the proposed acquisition to incur some initial start-up losses. Based on its 85% stake, iFast’s share of the loss is estimated at $4 million for FY2022. Having said so, iFast aims to turn BFC around from FY2024.
For now, “BFC Bank would be a further drag to FY2022–23F earnings”, says Tan.
Other analysts are not as bearish. DBS Group Research analyst Ling Lee Keng, for example, has kept her “buy” call on iFast in a Feb 15 note, but with a lower $10.85 target price from $11.37 previously.
While FY2021 earnings were below her estimates, Ling notes that iFast has put in place the pieces to drive growth. “Though some initial start-up losses are expected from the new initiatives, we maintain our positive view on iFast on the back of the strong growth momentum ahead, propelled by the Hong Kong business from 2024 onwards,” write Ling.
To recap, iFast is a subcontractor developing a centralised digital platform for the Mandatory Provident Fund, Hong Kong’s largest retirement scheme. The contract is for a two-year implementation period and a seven-year operation and maintenance period.
Ling forecasts the Hong Kong business to contribute between 30% and 35% of total revenue in FY2024 and FY2025 respectively. Out of this, the ePension division will account for 70% of the total contribution from Hong Kong.
There is a possibility that the ePension division can start to contribute earlier than FY2024, adds Ling. — Jovi Ho
Digital Core REIT
Price target:
UOB Kay Hian “buy” US$1.32
Some US$500 mil in acquisition seen
UOB Kay Hian’s Jonathan Koh has kept his “buy” call on Digital Core REIT (DCR) but with a higher target price of US$1.32 ($1.78) compared to US$1.18 previously.
In his Feb 14 report, Koh expects DCR to scale up quickly by exploring the acquisition of data centres now held by its sponsor Digital Realty in Singapore, Australia and Europe.
As the exclusive S-REIT of Digital Realty, DCR has been granted a global right of first refusal (ROFR) on an assets pipeline worth over US$15 billion.
Koh also likes DCR’s low aggregate leverage of 27%, which gives it more to stretch its balance sheet. It can also tap on its sponsor’s relationship banks and enjoy a competitive cost of debt at 1%.
Koh estimates DCR to acquire assets worth US$500 million by the end of 2022, with contributions from these data centres to fully kick in come FY2023 ending Dec 31, 2023. The acquisitions will be funded by equity fundraising of US$100 million and additional borrowings of US$350 million, which will bring aggregate leverage to 37.3% post-acquisition.
As such, he foresees a “decent boost” to DPU in FY2023, raising his DPU forecast by 14.3% to 5.2 US cents after factoring in the potential acquisitions.
Koh also highlights that DCR trades at a P/NAV that is “at a huge discount relative to peers.”
Based on a US$1.16 closing price on Feb 14, DCR currently trades at P/NAV of 1.38x, compared with other data centre REITs that are trading at an average P/NAV of 1.57x. Meanwhile, Keppel DC REIT trades at 1.34x and Mapletree Industrial Trust at 1.80x. — Lim Hui Jie
