BRC Asia - Phillip Securities 2023-05-18: Disappointing 1H23, Strong Uptick Expected In 2H23

• BRC Asia (SGX:BEC)'s 1H23 net profit was below our expectations, at 31% of our FY23e forecasts. Net profit fell 34.1% y-o-y, due to 15% decline in ASP; and also the slow construction progress with safety measures implemented at worksites, which caused deliveries to be deferred.
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• Construction activities have picked up since April. Demand remains strong, underpinned by pent-up demand in residential and infrastructure development. BCA has projected 2023 construction demand at S$27bn-32bn (2022: S$29.8bn) and progress payment to grow by 9-20%.
• BRC Asia’s orderbook has further grown to S$1.42bn. Rebar prices have stabilized from Feb 2023.
• Maintain BUY on BRC Asia with a lower DCF-derived target price of $1.99 (previously $2.14). We cut our forecasts by 23.2% and 27.7% for FY23e and FY24e to reflect the lower 1H23 earnings.
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The Negative

1H23 earnings came in at only 31% of our FY23e estimates.

• The shortfall was due to lower order deliveries, which was impeded by low construction progress at work sites to meet heightened safety measures. The measures are mandated to last till end-May, but activities are picking up with improved safety conditions.
• BRC Asia booked more lower-margined trading businesses during the period, and gross margin fell 1.3% pt to 7.4%. Interest costs rose 170% y-o-y to S$6.3mil, resulting in 34.1% y-o-y decline in 1H23 net profit.

The Positives

Net gearing improved to 0.38x (Sep 22: 0.76x).

• Read more at SGinvestors.io.

Peggy Mak Phillip Securities Research | https://www.stocksbnb.com/ 2023-05-18 SGinvestors.io

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