Ong and Tan write in their May 8 note: “We deem the results as a beat, as 1HFY2024 is typically a weak season due to festivities and rainy weather.”
Similarly, revenue in the half grew 6% y-o-y on stronger sales volumes and the company’s gross profit margin ticked up 2.4% y-o-y due to a higher-margin project mix and lower inventory costs.
Consequently, BRC Asia proposed an interim dividend per share (DPS) of six cents for the 1HFY2024, from five cents in 1HFY2023.
Notably, Ong and Tan see growth in Singapore’s construction sector, noting that the latest data from the Building and Construction Authority (BCA) points to a healthy growth of 7% y-o-y during the first quarter of the year, forming around 25% of its FY2024 target of $34 billion to $37 billion.
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“We believe the outlook for Singapore’s construction sector remains positive, with total construction demand (measured by contracts awarded) in 2024 forecasted by BCA at $32 billion to $38 billion from 2023’s $33.8 billion, driven by large commercial projects, public housing ramp-up, and roll-out of infrastructure developments,” write the analysts.
Additionally, following BRC Asia’s April 23 announcement of the proposed 20%-stake acquisition of Singapore-based Angkasa Daehan Steel for a consideration of $16 million, Ong and Tan write that the acquisition’s multiple of 1.0 times price-to-book value (P/BV) “seems reasonable”, and they estimate the deal to be 1% to 3% accretive to BRC Asia’s FY2025 net profit.
Overall, the analysts like the stock for its attractive FY2024 yield of around 9% and undemanding valuation of 6.4 times FY2025 price-to-earnings ratio (P/E).
Re-rating catalysts noted by them include labour productivity improvements driving a quicker recovery in construction activities, while downside risks include counterparty credit risks, and an economic slowdown negatively impacting construction demand.
As at 12.35 pm, shares in BRC Asia are trading one cent higher or 0.50% up at $2.02.
