DBS increases BRC Asia’s target price to S$2 from previous S$1.89

SINGAPORE: Analysts from DBS Group Research have affirmed their “buy” rating for leading steel supplier BRC Asia. However, DBS increased BRC Asia’s target price to S$2 from the previous S$1.89. This decision is underpinned by the company’s robust market position and a positive outlook in the construction industry, The Edge Singapore reports.

BRC Asia’s “dominant” market share, ranging between 60% and 70%, favours the company to capitalise on the industry’s growth. According to analysts Lee Eun Young and Amanda Tan, clients undertaking substantial projects increasingly choose BRC due to its capability to manage large-scale projects. This places the company in a strategic position to benefit from upcoming projects such as the HDB initiatives, Changi Airport Terminal 5, and the expansion of integrated resorts.

Official projections indicate that construction demand in Singapore is anticipated to range between S$25 billion and S$32 billion annually from 2024 to 2027. Despite potential external challenges, the analysts believe Singapore’s robust economic fundamentals will attract investments.

Analysts said, “Despite external headwinds, Singapore’s healthy economic fundamentals should continue to attract investments. Hence, private sector construction demand should likely remain stable.”

They also noted, “With steady construction demand, we expect construction output and consequently demand for BRC’s solutions to remain firm in the medium term,” citing key upcoming projects like the Cross Island MRT line and Downtown Line extension.

BRC Asia’s order book, standing strong at S$1.3 billion, and accelerating site progress are identified as pivotal factors for the current fiscal year, FY2024. The past year witnessed a slowdown in construction activity in Singapore, attributed to a series of fatal accidents leading to a “heightened safety period” that concluded in May. Since then, the company has observed an overall acceleration in local construction progress. However, intermittent downtime and potential cost pressures due to safety concerns and resource constraints remain areas of consideration for BRC.

Analysts Lee and Tan caution that higher electricity, manpower, and financing costs in the construction industry may exert pressure on margins, eventually affecting BRC. Nevertheless, they project that the company’s “strong” order book and the ongoing progress in construction activities will be key drivers for the fiscal year 2024.

The analysts’ revised target price of S$2 is based on a new valuation multiple of 8x, slightly above +0.5 standard deviations of the historical mean. On a separate note, Peggy Mak of PhillipCapital has maintained a “buy” recommendation and a target price of S$1.99 for BRC Asia. Peggy Mak anticipates that the company’s average selling price has reached its bottom and is poised to remain stable, estimating a 20% increase in demand volume in FY2024 in tandem with the anticipated upswing in construction activities. /TISG