27 November 2014

BRC Asia - Full Year Report Summary - November 2014

Singapore, 26 November 2014 – SGX-Mainboard listed BRC Asia Limited (“BRC” or “The Group”), one of the largest prefabricated steel reinforcement providers in Singapore, reported net profit of S$28.4 million on revenue of S$397.4 million for its financial year ended 30 September 2014 (“FY2014”), which were 20% and 7% lower respectively when compared with the preceding financial year ended 30 September 2013 (“FY2013”). This was despite having achieved a record sales volume in FY2014 in a booming local construction market. The key reason was declining selling prices which fell faster than steel costs due to intensifying competition.


Financial Highlights of BRC Asia




Going forward


Led by the US, the global economy is expected to be on an expansion path in the coming year, which should benefit both the Singapore and ASEAN economies. For Singapore, which is on course to meet the GDP growth forecast of 2.5%-3.5% in 2014, the Monetary Authority of Singapore (MAS) expects a similar pace of economic expansion next year. While Singapore’s external-oriented sectors should be uplifted by the US economic recovery, domestic-oriented sectors such as property development and construction are expected to slow after a number of years of booming demand and supply.


The latest third quarter 2014 Real Estate Sentiment Index 2 (RESI), which measures the perceptions and expectations of real estate development and market conditions in Singapore, indicated a bleak market outlook for the next 6 months. 3 The expected slowdown in real estate development activities would curb the growth of demand for construction in the longer term. However, data by the various Singapore government agencies show that the construction pipelines for both residential and non-residential properties will remain in a heightened state for the foreseeable future.


The outlook for local construction demand, and hence for local reinforcing steel, remains robust.


BRC’s Group Managing Director, Mr Lim Siak Meng, commented, “I expect market competition to intensify with an enlarged reinforcing steel industry jostle for shrinking demand as real estate development activities slow after the last few hectic years. On a positive note, I am heartened by the increasing acceptance of Prefabricated Reinforcing. We remain committed to innovate and to invest in resources to develop more Prefabricated Reinforcing Solutions that will enable our customers to build Better  Faster  Cheaper!”

My Notes

BRC Asia revenue and net profit experienced a volatile behavior, which I believe that it is partly due to it is in the construction industry which experiences greater volatility in economy cycle. Apart from there, intense competition among peers illustrate that the group may not be able to defend a good profit margin later. Nonetheless, the ROE of more than 15% as well as free cash flow of about S$11 Million would allow the company to stay in a stronger position in upcoming competition. With PB ratio of about 1.0x and trailing dividend yield of about 9.xx%, I believe the dividend yield is good reason for certain investor to purchase this counter. But you have to be patient as the company is currently experiencing lower revenue (due mainly to lower average selling price despite growth in total selling volume) and lower profit margin (have to cut down the selling price faster than drop in inventory cost due to intense competition). 

Please do note that this is an illiquid counter and may not suitable for investors who are looking for stable income counters.

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