BRC Asia: Solid Orderbook Underpins Positive Outlook Despite Soft 1QFY25 Results

Regional Morning Notes, Friday, 07 March 2025

BRC Asia (BRC SP)

1QFY25: Soft Results As Margins Compress

BRC reported lower 1QFY25 revenue (-12.4% yoy) and gross profit (-19.0% yoy), dragged by falling steel prices and slower project off-take. However, 1QFY25 PATMI was higher (+13.9% yoy), driven by a reversal of provisions for onerous contracts. Moving forward, BRC sees strong demand from a large number of upcoming HDB projects and mega infrastructure projects. Despite its decent 6.3% dividend yield, the analyst opines that BRC is fully valued at current levels, thus maintaining a HOLD rating but with a higher target price of S\$2.76.

Results

[[1]]Soft underlying results. BRC’s 1QFY25 results were within expectations, with headline revenue at S\$350.0m (-12.4% yoy), gross profit at S\$28.7m (-19.0% yoy) and PATMI at S\$19.5m (+13.9% yoy), representing 23%/18%/23% of the full-year estimates respectively. However, the analyst understands that there was a reversal of provisions for onerous contracts in 1QFY25 which led to higher earnings growth. Excluding this, 1QFY25 underlying PATMI would have fallen yoy and below estimates. The lower top-line revenue was largely due to a fall in steel prices and slow project offtake coupled with engineering delays that have hindered project completion. The greater-than-expected fall in 1QFY25 gross profit was largely due to an unfavourable product mix as steel prices dropped, resulting in 1QFY25 gross margin falling 0.7ppt yoy to 8.2%.

Solid Orderbook

[[2]]In the medium term, BRC expects a favourable outlook as strong demand from an expected large number of HDB projects being planned and upcoming infrastructure projects such as the Changi Airport Terminal 5 and Integrated Resort expansion would help support delivery volumes. However, schedules and phases of these key projects may undergo changes which could affect project delivery. BRC’s orderbook remains robust, standing at S\$1.5b as at end-1QFY25. The analyst expects the group to deliver half of its current orderbook in the next 3-4 quarters as volumes recover.

Stock Impact

[[2]]The Building and Construction Authority projected that the total construction demand in 2025 would be between S\$47b and S\$53b, a sharp increase from S\$44.2b in 2024. These indicators point to a favourable environment for the domestic construction industry, signalling substantial growth prospects and lucrative opportunities within the sector. The public sector demand is fuelled by new Housing Development Board projects and major infrastructure initiatives, including contracts for the Cross Island MRT line, Changi Terminal 5 and Tuas Port expansions. Meanwhile, the private sector continues to thrive with residential developments, mixed-use properties, and industrial facilities.

[[2]]BRC is strategically poised to capitalise on the surge in public sector construction, as it is able to leverage its expertise in crucial infrastructure components such as steel reinforcement. BRC’s long-term outlook remains positive, underpinned by a solid orderbook valued at S\$1.5b as of end-1QFY25, which is expected to sustain BRC’s operations for up to five years. With its dominant domestic market share, BRC serves as a strong proxy for Singapore’s construction sector.

Earnings Revision/Risk

[[2]]The analyst trims the FY25-27 PATMI estimates, on the back of lower gross margin assumptions. The revised FY25-27 PATMI forecasts are S\$80.6m (S\$84.7m previously), S\$84.3m (S\$90.0m previously) and S\$88.1m (S\$95.7m previously) respectively.

Valuation/Recommendation

[[2]]The analyst maintains a HOLD rating but with a higher PE-based target price of S\$2.76 (S\$2.52 previously), based on a 9x FY25F PE multiple (8x FY25F PE multiple), pegged to +1.0SD (+0.5SD previously) of BRC’s five-year average mean. The analyst has increased the PE multiple as they have become more positive on BRC’s near-to-medium-term outlook, backed by its strong orderbook and favourable tailwinds.

[[2]]However, despite the group’s decent 6.3% FY25 dividend yield, the analyst reckons that BRC is fairly valued at current price levels with limited upside potential. The analyst recommends investors to take profit on any potential strength in share price performance.

Share Price Catalyst

[[2]]Faster-than-expected recovery in construction activities, more public housing projects awarded, and earnings-accretive acquisitions.

UOB Kay Hian, Friday, 07 March 2025