Excerpts from SAC Advisors' report
Analyst: Terence Chua
| Market Leader in Steel Reinforcement Post the acquisition of Lee Metal in June 2018, BRC Asia is now the largest steel reinforcement supplier in Singapore with a dominant market share. We expect BRC to achieve three-year earnings growth of 50.6% compounded earnings growth from FY19, led by recovery in the local construction sector, dominant position in steel construction material supply and full-year consolidation of Lee Metal’s earnings.
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BRC's prefabricated reinforcement solutions are tailored to customers' specifications. Youtube video screenshot
Further recovery in the construction sector. After the downturn in 2015 to 2017, construction demand picked up from 2018, according to the Building and Construction Authority.
This demand typically translate into awards and progress billings 6 to 18 months down the road, and BCA has projected a pick up in progress payments from S$27m in year 2018 to between S$28 to S$30m in year 2019.
In addition to the S$9bn investments into the two integrated resorts in Singapore, airport terminal, transportation network and other public sector projects, demand from the private sectors would stem from the URA Master Plan 2019 and the re-development of the en-bloc residential projects.
| We initiate coverage on BRC Asia with a BUY recommendation and a fair value target price of $1.71,based on 14x FY19E earnings (~19% discount to peers) or 11x FY20E. Overall margins are expected to inch higher with better pricing power from a strengthened market position post acquisition, and a recovery in the construction sector. Our target price implies a 27.6% upside to the last traded price, with a dividend yield of 3.8% for FY19E. |
Key risk: Weaker economic sentiment.
