Company Background
Post the acquisition of Lee Metal in June 2018, BRC Asia is now the largest steel reinforcement supplier in Singapore with a dominating 70% market share.
Company Background
Post the acquisition of Lee Metal in June 2018, BRC Asia is now the largest steel reinforcement supplier in Singapore with a dominating 70% market share.
Investment Merits
Outlook
We are positive on the outlook of the construction industry post circuit-breaker. As construction activities resume, demand for construction materials is expected to increase, leading to a re-rating of BRC Asia’s shares.
Initiating coverage with BUY rating and TP of S$1.87
We initiate coverage with a BUY recommendation and target price of S$1.87. Our TP is based on 11x FY21 P/E, a 15% discount to their historical average P/E on account of the uncertain environment. In our view, BRC Asia should trade at a higher premium to their historical P/E after the acquisition of Lee Metal in 2018 as this strengthened their market position considerably. Nonetheless, we remain cautious about the outlook for the industry as construction activity could remain subdued until a permanent solution for the pandemic is found.
Investment Merits
Initiating coverage with BUY and target price of S$1.87
We initiate coverage with a BUY recommendation and target price of S$1.87. Our TP is based on 11x FY21 P/E, a 15% discount to it’s 10-year historical average P/E on account of the uncertain environment. In our view, BRC Asia should trade at a higher premium to their historical P/E after the acquisition of Lee Metal in 2018 as this strengthened their market position considerably. Nonetheless, we remain cautious about the outlook for the industry as construction activity could remain subdued until a permanent solution for the pandemic is found.
Risks to our view include 1) Resurgence of COVID-19 cases in Singapore and in the foreign workers dormitories, and 2) Failure to bring in new foreign workers to alleviate the labour crunch.
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Terence specialises in the consumer, conglomerate and industrials sector. He has over five years of experience as an analyst in the buy- and sell-side. As an institutional fund management analyst, he sat on the China-Hong Kong desk. Terence was ranked top 3 for Best Analyst under the small caps and energy category in the Asia Money poll 2018.
He graduated from the Singapore Management University with a major in Finance (Honours), and is the honoured recipient of the CFA scholarship.
