UOB Kay Hian

Monday, 26 May 2025

BRC Asia (BRC SP): Navigating Growth Amidst Construction Boom

Investment Thesis: Hold Rating Maintained

• Recommendation: HOLD (Maintained) [[1]]
• Share Price: S\$3.13 [[1]]
• Target Price: S\$3.29 (Previous TP S\$2.76) [[1]]
• Upside: 5.0% [[1]]

BRC Asia designs, manufactures, and markets steel mesh under the BRC brand name. The company offers a range of products including non-standard and customized mesh, prefabricated products like steel beams, column cages, and prefabricated beams. [[1]]

Stock Data and Key Metrics

• GICS Sector: Industrials [[1]]
• Bloomberg Ticker: BRC SP [[1]]
• Shares Issued (m): 274.4 [[1]]
• Market Cap (S\$m): 858.7 [[1]]
• Market Cap (US\$m): 667.4 [[1]]
• 3-mth Avg Daily Turnover (US\$m): 0.1 [[1]]

Price Performance (%)

• 52-week High/Low: S\$3.22/S\$2.02 [[1]]
• 1mth: 3.3 [[1]]
• 3mth: 7.2 [[1]]
• 6mth: 32.1 [[1]]
• 1yr: 48.3 [[1]]
• YTD: 25.2 [[1]]

Major Shareholders (%)

• Esteel Enterprise P/L: 61.2 [[1]]
• Hong Leong Asia: 20.0 [[1]]
• FY25 NAV/Share (S\$): 1.87 [[1]]
• FY25 Net Debt/Share (S\$): 0.14 [[1]]

2QFY25 Performance: Margins Expansion Drives Results

BRC Asia reported a decrease in 1HFY25 revenue (-5.6% yoy) and gross profit (-9.7% yoy), primarily due to falling steel prices and slower project off-take. However, 2QFY25 PATMI saw an increase of +5.5% yoy, largely driven by lower operating costs. The company anticipates strong demand from upcoming HDB projects and mega infrastructure projects. [[1], [2]]

Despite a decent 6.4% dividend yield, the stock is considered fully valued at current levels, hence the maintained HOLD rating with a revised target price of S\$3.29. [[2]]

1HFY25 Financial Results

The following table summarizes BRC Asia’s financial performance:

Detailed Results Analysis

• Above Expectations: BRC Asia posted lower 1HFY25 revenue (-5.6% yoy) and gross profit (-9.7% yoy) but higher PATMI (+9.2% yoy), representing 46%/43%/52% of full-year estimates respectively. [[2], [3]]
• Revenue and Gross Profit: Lower yoy revenue and gross profit were attributed to decreased steel prices and a S\$7.7m provision for onerous contracts, leading to reduced gross margins. [[3]]
• PATMI Estimates: Higher-than-expected other income and lower finance and operating costs drove the PATMI beat. 1HFY25 gross margins fell 0.4ppt yoy, while PATMI margin increased 0.8ppt yoy. [[3]]
• Quarterly Performance: 2QFY25 revenue grew 1.9% yoy due to improved delivery volumes. Gross profit fell slightly by 1.3% yoy, likely due to an unfavorable product mix as steel prices declined, resulting in a 0.3ppt yoy decrease in gross margin. PATMI grew 5.5% yoy, driven by lower finance costs and opex. [[3]]
• Dividend: BRC declared an interim 1HFY25 dividend of 6.0 S cents/share (1HFY24: 6.0 S cents/share). The group is expected to sustain its historical average payout ratio of 60% in FY25, implying a total FY25 dividend of 20.0 S cents/share and an attractive annualised dividend yield of around 6.4%. [[3], [4]]

Key Financials Forecast

The following table presents the key financial forecasts for BRC Asia:

Orderbook and Future Outlook

BRC Asia anticipates strong future demand from numerous HDB projects and infrastructure projects such as the Changi Airport Terminal 5 and Integrated Resort expansion. The orderbook remains robust at S\$1.5b as of end-2QFY25, with expectations to deliver half of it in the next 3-4 quarters. [[4], [5]]

Stock Impact: Construction Sector Growth

Singapore’s construction sector shows promising growth, with the Building and Construction Authority projecting total construction demand between S\$47b and S\$53b in 2025, a significant increase from S\$44.2b in 2024. Public sector demand is driven 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. The private sector thrives with residential developments, mixed-use properties, and industrial facilities. [[5], [6]]

Strategic Positioning and Pipeline

BRC Asia is well-positioned to leverage its expertise in steel reinforcement to capitalize on the surge in public sector construction. The company’s long-term outlook remains positive, supported by a solid orderbook of S\$1.5b as of end-2QFY25, expected to sustain operations for up to five years. With its dominant domestic market share, BRC serves as a strong proxy for Singapore’s construction sector. [[6]]

Earnings Revision

FY25-27 PATMI estimates have been increased due to better PATMI margin assumptions. The forecasts are now S\$96.0m (previously S\$80.6m), S\$102.2m (previously S\$84.3m), and S\$110.0m (previously S\$88.1m) for FY25-27 respectively. [[6]]

Valuation and Recommendation

The HOLD rating is maintained with a higher PE-based target price of S\$3.29 (previously S\$2.76), based on the same 9x FY25F PE multiple, pegged to +1.0SD of BRC’s five-year average mean. Despite the attractive 6.4% FY25 dividend yield, BRC is considered fairly valued at current price levels with limited upside potential. Investors are advised to take profit on any potential strength in share price performance. [[6], [7]]

Potential Catalysts

• Faster-than-expected recovery in construction activities. [[7]]
• More public housing projects awarded. [[7]]
• Earnings-accretive acquisitions. [[7]]

Financial Tables

PROFIT & LOSS

BALANCE SHEET

CASH FLOW

KEY METRICS