BRC Asia is on track to double net profit in FY2021 to a record high of $40 million, says CGS-CIMB Research.
Analyst Ong Khang Chuen has maintained his ‘add’ rating for the company with an unchanged target price of $1.90 on the back of construction activities in Singapore which have continued to recover.
“Construction activities have returned to circa 75% of pre-Covid-19 levels,” he writes in a research note dated March 10.
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Ong expects further improvement after the Singapore government announced it would start vaccinating migrant workers living in dorms, which he believes could ease social distancing measures at construction sites in the future.
“As contractors adapt better to a new working environment, we expect construction activities in Singapore to further improve to circa 80% of pre-Covid level by mid-2021,” he writes.
BRC’s order book stood at $1.09 billion as of 1Q2021, which Ong expects to underpin the company’s FY2021 revenue growth of 30% y-o-y to $794 million.
Meanwhile, Ong remains upbeat on BRC’s ability to maintain gross profit margins of 11% for FY2021 despite increasing international steep prices, as the company has locked in inventory requirements for the rest of the year.
“We remain confident that BRC can continue to uphold healthy GPM of 11% in FY21F, in spite of the likelihood of higher provision for onerous contracts (an accounting treatment where BRC has to take mark-to-market losses due to higher steel market prices, which can be later reversed and credited to the profit and loss statement when deliveries under such sales contract are executed),” he writes.
Overall, Ong continues to recommend accumulating BRC as a proxy to the recovering Singapore construction sector, given its market leadership in the reinforced steel industry.
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“Our target price is unchanged at $1.90, still based on 1.57 times 2021 P/BV,” he writes.
His target price is based on the Gordon Growth Model, with ROE of 14.9%, cost of equity of 9.7% and terminal growth of 0.5%.
As at 2.01pm, shares in BRC were trading 2 cents or 1.27% higher at $1.60.
