Excerpts from CGSCIMB report

BRC Asia (SGX: BEC)

• FY9/22 was a record year: NP of S$90m (+92% yoy) above our forecasts. Final and Special DPS of 12 Scts brings FY22 dividend yield to 10%.
• Despite a slower start, FY23F outlook remains positive, anchored on strong local construction demand and more supportive labour conditions.

Valuation attractive at 6x CY23F P/E and 10% dividend yield. Reiterate Add.

FY9/22: A record year in revenue and profits; 10% dividend yield

Supported by recovery in Singapore’s construction activity, BRC’s 2HFY9/22 net profit rose to S$50m (+81% yoy), above expectations with FY9/22 coming in at 120%/115% of our/Bloomberg consensus’ forecasts.

2H revenue grew 34% yoy to S$906m on the back of  higher deliveries and steel prices. Gross margins expanded 3.1% pts yoy to 9.4%, due to
a net reversal of S$13m provision for onerous contracts during the period (1H21: provision of S$45m).

BRC declared final and special dividends amounting to 12 cts bringing its FY22 total DPS to 18 Scts (54% dividend payout), implying a 10.2% dividend yield.

BRC Asia fundamentals for FY23F remain healthy on strong orderbook

Local construction sector growth accelerated to 7.8% yoy in 3QCY22, faster than the 4.8% yoy expansion in the preceding quarter, helped mainly by the easing of border restrictions on the inflow of migrant workers.

That said, MTI pointed out the value-add of the sector remained 18% below pre-pandemic levels. Recovery remains constrained by

• lower productivity given time needed to train the newly replenished workforce, and
• numerous stop work orders at construction sites due to worksite incidents.

While construction activities could be dampened near-term with the “Heightened Safety” period introduced by the Ministry of Manpower, we remain positive on BRC’s FY23F outlook anchored on strong construction demand and more supportive labour conditions.

Look out for construction demand trends amid macro slowdown

With current industry orderbooks at robust levels (mainly backed by longer duration public projects), BRC remains positive that construction activities can remain at healthy levels in the medium term.

Nevertheless, in view of a potential macro slowdown, we will be closely monitoring the strength of construction demand trends in the coming quarters based on our past studies, there is typically a 12-18-month lag correlation between the two.

BRC Asia valuation/recommendation

Reiterate Add as we expect fundamentals to remain healthy in FY23F, supported by a solid industry orderbook, coupled with attractive valuation of 6x FY23F P/E and 10% dividend yield.

We raise our FY23-24F EPS by 2.2-3.8% on the back of higher delivery assumptions; our TP is kept at S$2.50, based on a lower 1.6x CY23F P/BV (GGM: ROE 18.1%, cost of equity 11.8%, terminal growth 0.5%) as we roll over our valuation base year.

Re-rating catalysts include further improvements in Singapore construction activity levels. Downside risks include counterparty credit risks and weaker construction demand on the back of a macro slowdown, which could negatively impact volume growth of BRC.

You can find the full report here and the company website here.