– 1H23 earnings came in at only 31% of our FY23e estimates. The shortfall was due to lower order deliveries, which was impeded by low construction progress at work sites to meet heightened safety measures. The measures are mandated to last till end-May, but activities are picking up with improved safety conditions. BRC booked more lower-margined trading businesses during the period, and gross margin fell 1.3% pt to 7.4%. Interest costs rose 170% YoY to S$6.3mn, resulting in 34.1% YoY decline in 1H23 net profit.
+ Net gearing improved to 0.38x (Sep 22: 0.76x). With easing of steel prices and freight costs, inventory holdings were brought down. Credit terms from suppliers become more favourable, leading to strong operating cash inflow of about S$0.608/share.
+ Orderbook edged higher to S$1.42bn (Sep 22: $1.4bn), as demand remains robust. BCA estimates that progress payments, which represent work done and revenue booked, to grow by 9-20% in 2023. We estimate about 60% of the orderbook are for jobs in the public sector which are less volatile and payments are more certain. While the delay in construction work had affected cash flow and credit conditions of some contractors, we do not see any risk of default that could impact building material suppliers.