BRC Asia - Iding On Strong Recovery Of Construction
- BRC Asia (SGX:BEC) was incorporated in 1938 as the Malayan Wire Mesh & Fencing Co. Ltd. and was listed on the SGX mainboard in 2020. They are a leading steel reinforcement solutions provider in Singapore with a dominant market share of ~60%-70% after the acquisition of Lee Metal (SGX:593) in 2018.
- Strong revenue growth fuelled by increased construction activity - The BCA estimates 2022 construction output to be between S$29-32bn, roughly 12%-24% higher than 2021amidst the pent-up backlog from delayed projects. We expect that BRC Asia’s sales volume of rebar will increase 16% in 2022. This should boost revenue growth by a whopping 40% in 2022.
- Cost synergies to lift margins from FY21 low - Strong sales volume growth and higher market share after the acquisition of Lee Metal allows BRC Asia to have higher bargaining power for purchase of rebar. We believe that the stronger pricing power on the back of higher sales volumes will translates into cost synergies, leading to an improvement in margins from 7.0% in FY21 to 8.7% through the forecasted period.
- Dominant market position brightens growth outlook - With a market share of 60-70%, BRC Asia’s large market share implies that the group is well positioned will ride the growth of the industry. According to our checks, customers with big projects are more inclined to choose BRC Asia because of its ability to handle large scale projects, which places the group in a good position to benefit from the upcoming ramp up of HDB projects, and other major projects such as the Changi Airport Terminal 5 and expansion of the integrated resorts.
- Initiate coverage on BRC Asia with BUY, target price of S$2.40. Our target price is based on a 1-year forward P/E of 8.2x, a ~15% discount to the 5-year historical mean in view of global economic uncertainty.
- Key Risks to Our View: Disruptions in construction activity, prolonged labour supply issues, huge swings in steel prices, and developers’ cautious sentiment.
Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
LEE Eun Young DBS Group Research | Singapore Research Team DBS Research | https://www.dbs.com/insightsdirect/ 2022-06-08 2022-06-08
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