"We see BRC Asia benefiting from a favourable construction sector outlook in 2024 driven by elevated industry order books and robust projects pipeline," the analysts write in their Nov 22 note.
Their $2.30 target price is based on an "undemanding" 6x FY2024 earnings, with support from the dividend of 10%.
In 4QFY23 ended Sept 30, the company booked a one-off $5.4 million impairment charge for its 17%-owned Maldives associate.
That aside, thanks to better margins, BRC’s core earnings for 4QFY2023 was up 8% y-o-y and up 43% q-o-q to $32 million, beating expectations.
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For this coming year, BRC Asiais seen to continue to capitalise on robust construction activities this coming year.
The CGS-CIMB analysts note that in September, construction output in Singapore, measured by progress payments, hit a multi-year high.
"We think is a good indication that industry players are starting to meaningfully execute their elevated order books, which are at 9% above pre-Covid levels as at end-Sept.
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"We see a robust pipeline of projects in 2024 from the public residential, specifically, the ramp-up of built-to-order flats, and infrastructure ones, such as railway projects, which we think BRC will be able to capitalise on given its dominant market share in Singapore's reinforced steel industry," the analysts add.
Potential re-rating catalysts, according to CGS-CIMB, include better improvements in labour productivity driving a quicker recovery in construction activities and boosting BRC’s sales volumes.
On the other hand, downside risks will include counterparty credit risks, and weaker construction demand due to an economic slowdown negatively impacting BRC’s sales volumes.
DBS Group Research is similarly positive on this stock, with a "buy" call and $1.89 target price, but warns that some potential hurdles ahead.
Earlier this year, the so-called heightened safety period (HSP) - which refers to a deliberate slower pace of construction activities following a spate of fatal accidents - has ended.
From the perspective of DBS, that's a key overhang over BRC Asia that has been removed, as that means worksites can resume at a quicker pace.
"BRC has already observed a general acceleration in the progress of local construction progress post-HSP but sees intermittent periods of downtime due to safety concerns and resource constraints," warns DBS.
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"Additionally, higher electricity, manpower, and financing costs could exert some pressure on margins in the construction industry which may eventually flow through to BRC," adds DBS.
BRC Asia shares closed at $1.74, up 5.45%, on heavy volume.
