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BRC Asia Ltd: Acquisition of Southern Steel Mesh – Stock Analysis and Investment Recommendation

Posted on May 27, 2025 at 8:51 am (GMT+8)

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CGS International

May 26, 2025

BRC Asia Ltd: Acquiring Malaysian Market Share

Key Takeaways

  • BRC Asia’s 1HFY9/25 net profit reached S\$42m, a 9% year-over-year increase, accounting for 53% of FY25F estimates. [[1]]
  • The company’s new order book hit a high of S\$1.5bn as of March 31, 2025, compared to S\$1.4bn in FY9/24. [[1]]
  • BRC is advancing its M&A strategy with a proposed 55% stake acquisition of Southern Steel Mesh, giving it an estimated 15% share in the Malaysian market. [[1]]
  • The recommendation is to Add; the FY26F dividend yield is attractive at 6.4%. [[1]]

Acquiring Malaysian Market Share

On April 22, 2025, BRC Asia Ltd announced its proposed acquisition of a 55% stake in Southern Steel Mesh (SSM), a non-listed entity, from Southern Steel Behard for a purchase consideration of RM61.05m (S\$18.2m). [[1]]

  • SSM operates in the same sector as BRC, manufacturing and selling steel wire mesh, concrete wires, hard-drawn wires, and cut and bend rebars. [[1]]
  • SSM has four manufacturing plants located in the Central and Northern regions of Malaysia. [[1]]
  • BRC has a manufacturing plant in Johor but a negligible share in the Malaysian market. [[1]]

Strategic Rationale

Management views the acquisition of SSM as a value-unlocking opportunity. This will require upgrading SSM’s machinery and aligning its practices with industry benchmarks, enhancing its competitiveness against other downstream steel manufacturers. [[1]]

  • The acquisition will provide BRC with an estimated 15% share of the Malaysian downstream steel market. [[1]]
  • It will expand BRC’s footprint across Malaysia. [[1]]
  • The acquisition is subject to an EGM, as vendor SSB is a subsidiary of BRC’s controlling shareholder, Green Esteel. [[1]]

1HFY9/25 Results

BRC reported a 1HFY9/25 net profit of S\$42m (+9% or +S\$4m year-over-year), slightly above expectations at 53% of the FY25F estimate. [[1]]

  • The higher net profit was attributed to favorable FX/derivative movements (+S\$7.2m) and lower finance costs (-S\$2.8m year-over-year). [[1]]
  • Revenue fell 6% year-over-year to S\$716m due to lower steel prices, partially offset by higher delivery tonnage (estimated +5% year-over-year). [[1]]
  • Gross profit was down 10% year-over-year to S\$75m due to a provision of onerous contracts amounting to S\$7.7m in 1H25, compared to a S\$3.1m reversal in 1H24. Excluding this, gross profit was 5% higher year-over-year. [[1]]
  • BRC proposed an interim dividend per share of 6 Singapore cents (unchanged year-over-year, payout ratio: 39%). [[1]]
  • Despite lower steel prices, BRC’s order book reached a new high of S\$1.5bn as of March 31, 2025 (FY9/24: S\$1.4bn). [[1]]

Recommendation

The recommendation is to Add with a higher target price of S\$3.40. The high dividend payout is seen as sustainable in FY25-27F amid healthy industry fundamentals. [[1]]

  • The target price is raised to S\$3.40, now pegged to CY25F P/BV of 1.9x (+0.7 s.d. from BRC’s 20-year historical P/BV; GGM: ROE 16%, cost of equity 10%, terminal growth 1%, previously pegged to historical average of 1.5x) due to earnings revisions. [[1]]
  • Potential re-rating catalysts include strong improvements in offtake volumes and earnings-accretive M&A. [[1]]
  • Downside risks include counterparty credit risks and an economic slowdown impacting construction demand. [[1]]

Key Changes

  • FY25F-27F EPS estimates have been raised by 4.2-6.7% due to toned-down operating and finance expense assumptions. [[1]]
  • This note also marks a change in analyst coverage. [[1]]

Shareholder Information

  • Major shareholders: Esteel Enterprise holds 71.7% of shares. [[1]]
  • Free float: 28.3%. [[1]]

Financial Summary

Financial Summary Sep-23A Sep-24A Sep-25F Sep-26F Sep-27F
Revenue (S\$m) 1,627 1,481 1,474 1,518 1,518
Operating EBITDA (S\$m) 129.5 142.8 127.0 130.8 132.0
Net Profit (S\$m) 60.66 77.08 82.65 85.61 86.40
Core EPS (S\$) 0.30 0.28 0.30 0.31 0.31
Core EPS Growth (10.4%) (5.0%) 7.3% 3.6% 0.9%
FD Core P/E (x) 10.56 11.15 10.39 10.03 9.94
DPS (S\$) 0.16 0.20 0.20 0.20 0.20
Dividend Yield 5.11% 6.39% 6.39% 6.39% 6.39%
EV/EBITDA (x) 8.11 6.39 6.91 6.45 6.04
P/FCFE (x) 6.36 4.53 11.64 12.00 10.26
Net Gearing 45.9% 11.4% 3.7% (2.8%) (10.7%)
P/BV (x) 2.01 1.81 1.71 1.61 1.52
ROE 19.6% 17.1% 16.9% 16.5% 15.7%
% Change In Core EPS Estimates 4.20% 6.73% 6.70%
EPS/Consensus EPS (x) 0.99 1.01 1.02

Results Comparison

FYE Sep (S\$ m) 2HFY25 2HFY24 yoy chg 2HFY24 hoh chg FY24 FY23 yoy chg Prev. FY25F Comments
Revenue 715.6 758.3 -5.6% 723.1 -1.0% 1,481.4 1,627.0 -9.0% 1,492.0 In line, 1H25 formed 48% of our FY25F
Gross profit 67.4 74.7 -9.7% 79.1 -14.8% 153.8 139.0 10.6% 155.7
GPM 9.4% 9.8% -0.4% pts 10.9% -1.5% pts 10.4% 8.5% 1.8% pts 10.4%
Operating expenses (12.8) (19.6) -34.5% (10.6) 21.1% (30.2) (28.0) 7.9% (49.2)
Operating profit 54.6 55.1 -0.9% 68.5 -20.4% 123.6 111.1 11.3% 106.4 In line, 1H25 formed 51% of our FY25F
OPM 7.6% 7.3% 0.4% pts 9.5% -1.9% pts 8.3% 6.8% 1.5% pts 7.1%
Finance costs (3.8) (6.6) -42.0% (4.7) -18.4% (11.3) (12.9) -12.3% (11.0)
Assocs/JV contribution 0.2 (1.5) n.m. 0.4 n.m. (1.1) (7.0) n.m. (1.0)
Profit before tax 51.0 47.0 8.5% 64.2 -20.6% 111.2 91.2 21.9% 94.4
Income tax expense (8.9) (8.5) 5.2% (8.5) 5.2% (17.6) (15.5) 13.9% (15.1)
Effective tax rate 17.5% 18.0% -0.5% pts 13.2% 4.3% pts 15.9% 17.0% -1.1% pts 16.0%
Net profit 42.1 38.5 9.2% 55.0 -23.5% 93.5 75.7 23.5% 79.3
Exceptionals 0.0 0.0 n.m. 16.5 n.m. 16.5 (5.4) n.m. 0.0
Core net profit 42.1 38.5 9.2% 38.5 9.2% 77.0 81.1 -5.1% 79.3 Slightly above, 1H25 formed 53% of our full-year forecast

Earnings Revision

FYE Dec (S\$ m) New Old % change
FY25F FY26F FY27F FY25F FY26F FY27F FY25F FY26F FY27F
Revenue 1,474.0 1,518.2 1,518.2 1,492.0 1,500.0 1,506.0 -1.2% 1.2% 0.8%
Gross profit 147.4 157.9 157.9 155.7 156.5 157.1 -5.3% 0.9% 0.5%
Operating profit 107.7 111.3 112.3 106.4 107.0 107.4 1.2% 4.0% 4.6%
Core net profit 82.7 85.6 86.4 79.3 80.2 81.0 4.2% 6.7% 6.7%
Core EPS (scts) 30.1 31.2 31.5 28.9 29.2 29.5 4.2% 6.7% 6.7%

Peers Comparison

Company Ticker Recom. Price (lcl curr) Target Price (lcl curr) Market Cap (US\$ m) P/E (x) CY25F P/E (x) CY26F P/BV (x) CY25F Recurring ROE (%) CY25F Dividend Yield (%) CY25F
BRC Asia Ltd BRC SP Add 3.13 3.40 668 10.3 10.0 1.68 16.8% 6.4%
Hong Leong Asia HLA SP Add 1.20 1.75 698 9.1 7.9 0.83 9.3% 3.8%
Pan-United Corp Ltd PAN SP Add 0.73 0.75 394 11.5 11.1 1.76 15.8% 4.4%
Mean 10.3 9.7 1.43 14.0% 4.9%

Note: All forecasts for Not Rated companies are based on Bloomberg consensus estimates. Data as of May 26, 2025. [[3]]

ESG Factors

Overview

BRC Asia Ltd supplies prefabricated reinforcing steel solutions, which benefits the construction industry through on-site manpower savings, shorter construction cycles, and improved buildability and productivity. [[4]] The company focuses on maintaining strong product quality and optimizing production efficiencies to reduce scrap and improve workplace safety, as detailed in its FY23 sustainability report. [[4]] A key near-term operational risk is the company’s reliance on foreign workers. [[4]]

Keep Your Eye On

The majority of BRC’s employees are foreign workers, accounting for 80% of its workforce in FY21. [[4]] Regulatory changes on the Dependency Ratio Ceiling (DRC) are important to monitor as the government aims to grow the local workforce. [[4]]

  • Changes in Singapore’s DRC could lead to higher wage expenses for BRC. [[4]]
  • Border restrictions could disrupt workforce recruitment. [[4]]

ESG Highlights

BRC emphasizes product quality and material efficiency. [[4]]

  • The company complies with ISO 9001:2015 and sources from suppliers that meet British Standard BS4449:2005 or Singapore Standard SS560:2016. [[4]]
  • BRC aims to lower material scrap generation and sells steel scrap to collectors as part of its material management efforts. [[4]]

Maintaining high-quality standards is crucial for reducing risks and costs associated with faulty goods and maintaining BRC’s market leadership in prefabricated steel solutions. [[4]]

Trends

BRC’s Accident Frequency Rate (AFR) declined to 2.9 in FY23 (FY21: 14.3), and its Accident Severity Rate (ASR) fell to 88.4 in FY23 (FY21: 330.2), according to its sustainability report for FY23. [[4]]

Workplace safety is essential due to inherent accident risks. [[4]] Fatal accidents could severely damage BRC’s reputation and ability to secure future orders. [[4]]

Key Financial Metrics

P/BV vs ROE

Rolling P/BV (x) (lhs) ROE (rhs). [[5]]

12-mth Fwd FD Core P/E vs FD Core EPS Growth

12-mth Fwd Rolling FD Core P/E (x) (lhs) FD Core EPS Growth (rhs). [[5]]

Profit & Loss

(S\$m) Sep-23A Sep-24A Sep-25F Sep-26F Sep-27F
Total Net Revenues 1,627 1,481 1,474 1,518 1,518
Gross Profit 139 154 147 158 158
Operating EBITDA 129 143 127 131 132
Depreciation And Amortisation -18 -19 -19 -20 -20
Operating EBIT 111 124 108 111 112
Financial Income/(Expense) -13 -11 -8 -8 -8
Pretax Income/(Loss) from Assoc. -7 -1 1 1 1
Non-Operating Income/(Expense) 0 0 0 0 0
Profit Before Tax (pre-EI) 91 111 100 104 105
Exceptional Items
Pre-tax Profit 91 111 100 104 105
Taxation -15 -18 -18 -18 -18
Exceptional Income – post-tax
Profit After Tax 76 94 83 86 86
Minority Interests 0 0 0 0 0
Preferred Dividends
FX Gain/(Loss) – post tax
Other Adjustments – post-tax
Preference Dividends (Australia)
Net Profit 61 77 83 86 86
Recurring Net Profit 81 77 83 86 86
Fully Diluted Recurring Net Profit 81 77 83 86 86
Normalised Net Profit 76 94 83 86 86
Fully Diluted Normalised Profit 61 77 83 86 86

Cash Flow

(S\$m) Sep-23A Sep-24A Sep-25F Sep-26F Sep-27F
EBITDA 129.5 142.8 127.0 130.8 132.0
Cash Flow from Invt. & Assoc. 7.0 1.1 (0.5) (0.7) (0.8)
Change In Working Capital 72.0 83.6 (5.7) (11.1) 0.0
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense
Other Operating Cashflow (18.1) (9.0) 5.0 5.7 6.0
Net Interest (Paid)/Received (12.9) (11.3) (8.0) (8.2) (8.4)
Tax Paid (17.9) (14.2) (17.5) (18.2) (18.3)
Cashflow From Operations 159.5 193.0 100.3 98.3 110.6
Capex (3.3) (4.3) (5.0) (5.0) (5.0)
Disposals Of FAs/subsidiaries
Acq. Of Subsidiaries/investments
Other Investing Cashflow 5.9 7.1 3.5 3.2 3.2
Cash Flow From Investing 2.7 2.8 (1.5) (1.8) (1.8)
Debt Raised/(repaid) (27.4) (6.1) (25.0) (25.0) (25.0)
Proceeds From Issue Of Shares 0.0 0.0 0.0 0.0 0.0
Shares Repurchased 0.0 0.0 0.0 0.0 0.0
Dividends Paid (32.9) (30.2) (54.9) (54.9) (54.9)
Preferred Dividends
Other Financing Cashflow (66.7) (146.8) (8.0) (8.2) (8.4)
Cash Flow From Financing (127.0) (183.0) (87.9) (88.1) (88.3)
Total Cash Generated 35.2 12.8 10.9 8.5 20.4
Free Cashflow To Equity 134.8 189.7 73.7 71.6 83.7
Free Cashflow To Firm 175.0 207.1 106.7 104.8 117.1

Balance Sheet

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(S\$m) Sep-23A Sep-24A Sep-25F Sep-26F Sep-27F
Total Cash And Equivalents 184.6 191.4 202.3 210.7 231.2
Total Debtors 180.6 153.1 153.5 158.1 158.1
Inventories 407.1 377.5 381.6 391.3 391.3
Total Other Current Assets 44.1 40.0 40.0 40.0 40.0
Total Current Assets 816.5 762.0 777.3 800.1 820.6
Fixed Assets 117.6 110.9 96.6 82

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