UOB Kay Hian analysts Llelleythan Tan and John Cheong have downgraded their call on BRC Asia BEC to “hold” from “buy” previously after BRC’s revenue and net profit for the 1QFY2023 ended Dec 31, 2022, stood below their expectations.
BRC’s net profit for the quarter stood 12.2% lower y-o-y at $11.7 million and at 13.1% of Tan and Cheong’s full year estimates.
“The underperformance was due to rising operating costs, an unfavourable product mix and Singapore’s heightened safety period dragging down delivery volumes,” the analysts note in their March 10 report.
In addition to their recommendation downgrade, Tan and Cheong have slashed their target price estimate to $1.66 from $2.42, as they see ongoing headwinds for the group till the 9MFY2023.
“We opine that BRC is poised to face weaker 9MFY2023 as [the extended heightened safety measures to end-May instead of end-February] would have an unfavourable knock-on effect on BRC’s delivery volumes. Furthermore, additional potential downside may come from another extension if more companies were found to breach workplace safety measures,” they write.
“We do not see any near-term catalysts for FY2023,” they add.
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To this end, Tan and Cheong have cut their net profit estimates for the FY2023 to FY2025 “sharply” as they estimate the group to report lower revenue and margin assumptions for the period.
“For FY2023-FY2025, our net profit forecasts are $65.6 million ($95.4 million previously), $75.6 million ($109.7 million previously) and $87.7 million ($120.0 million previously) respectively,” they write.
Their lowered target price is based on the same P/E of 0.7x for the FY2023 and pegged to -0.5 standard deviations (s.d.) of BRC’s long-term average P/E (excluding outliers of [over] 2 s.d. at 25x).
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In their view, a faster-than-expected recovery in construction activities and the awarding of more housing projects are catalysts to BRC Asia’s outlook.
As at 4.54pm, shares in BRC Asia are trading 4 cents lower or 2.26% down at $1.73.
