Equity Research Report on BRC Asia(BEC.SI) - Initiating a BUY recommendation, having a 12 month price target of $1.86 with a 55% upside.

1. Equity Research Report July 2020
Information
Last Closed Price:
12M Target Price:
+/- Potential:
SGX Code:
GICS Sector:
GICS Sub-Industry:
$1.20
$1.86
55%
BEC.SI
Industrials
Fabricated Metals/Hardware
Stock Price Chart
Company Background
BRC Asia is involved in prefabrication of steel
reinforcement for use in concrete, trading of steel
reinforcing bars, and manufacturing and sale of
wire mesh fences. The company is the main
provider of steel reinforcement solutions in
Singapore and is expanding to Malaysia/China.
Key Financials
Market Cap:
Shares Outstanding:
Float:
52 Week High/Low:
Fiscal Year End:
(S$ M) FY18 FY19 FY20F FY21F
Revenue 569 916 920 938
Growth Rate(%) 82.1% 60.9% 0.42% 2.00%
EBITDA 31,681 60,948 67,226 73,249
Margin(%) 5.56% 6.67% 7.31% 7.81%
Net Income 12,296 31,562 36,245 41,535
Margin(%) 2.16% 3.45% 3.94% 4.43%
ROA 1.76% 4.54% 4.95% 5.44%
ROE 5.19% 12.0% 12.9% 13.4%
P/E Ratio 9.094
D/E Ratio 1.642
Management
Chairman & Group Director
CEO
COO
CFO
Mr. Teoh Ser Luck
Mr. Seah Kiin Peng
Mr. Zhang Xing Wang
Ms. Lee Chun Fun
Not broken, just bent
We are initiating a BUY recommendation on BRC
Asia(BEC.SI), having a 12 month price target of $1.86 with a
55% upside.
Recent Earnings Review
• 2% decrease in their top-line revenue as Covid-19 has
hampered majority of construction operations
• 97% increase in net profits, mainly due to post-acquisition
of Esteel that boosted their cost synergies and production
capabilities moving forward into the subsequent financial
years.
• Close to no revenue to be registered in the months of April-
June during the Phase 1 Circuit Breaker.
• Group has identified a slowdown in the construction sector
and has allocated potential credit losses moving forward
into the end of FY20
Investment Thesis
• BRC Asia to push their dominance and grab more market
share in Singapore, along with expansion to other parts of
Asia- Malaysia and China. This is supported by Malaysia’s
growth in its construction industry at 5.53% CAGR, along
with China at 7.5%, where BRC Asia has a presence in
these locations. Further, their prefabrication capabilities
will be in line with China’s demands – mandating the use
of prefabrication to build houses, increasing the
penetration rate to 25% by 2025.
• Strategic acquisition on Amsteel mills to boost current
capabilities and provision of end-to-end solutions,
including post-acquisition of Lee steel, a steel trading
company. This allows BRC Asia to be more nimble amidst
economic uncertainty and globally disrupted supply chains
– hampering top-line revenue.
• Great margins post 1HFY20 heading into economic
uncertainty. Further, heading into circuit breaker, there has
been a resumption of projects and pipeline of top-line
revenue will be restored gradually. The group has also
recorded extra credit losses with time to come, anticipating
that certain payments have to be written off in due time.
This shows the group’s capability to show foresight and
enforcing their prudence in an uncertain environment.
Risks Involved
• Relapse of coronavirus outbreak and having to head back
to Phase 1 of Circuit Breaker
• Reduction of consumer confidence levels
• Volatility of steel prices in an uncertain macroeconomic
environment
$287.00M
233.34M
47.42M
$1.00-$1.79
30 Sept 2020
Nathaniel Ling
Benjamin Tan

2. BRC Asia Limited, founded in 1938, is Singapore’s pioneer
in prefabricated reinforcing steel products and is considered
one of the leading companies, given its strong capabilities and
having the largest production capacity amongst other steel
providers in Singapore. The company was listed on the
Singapore Stock Exchange in 2000. Currently, the group has
operations in the People's Republic of China, Malaysia and
Singapore (Fig 1).
BRC Asia Limited’s core business segments includes -
provision of reinforcement bars, wires, prefabrication of
bars/wires, meshes & fences. Aside from rebars being
procured internationally from steel mills, the production of
other prefabricated products such as the wire mesh fences is
done at self-owned factories in Singapore, Malaysia and
China, allowing BRC Asia to cater to builders in public and
private housing sectors, as well as the commercial and
industrial space. Given the nature of off-site prefabrication,
clients can enjoy greater on-site productivity and shorter
construction cycles. This is achieved through the reduction in
cost of time and labour by finishing the task of steel fixing
work beforehand.
The Group has participated in a number of iconic projects
locally, such as Singapore's Marina Bay Sands and Resorts
World Sentosa integrated resorts, as well as the world's tallest
public housing project, Pinnacle@Duxton (Fig 2). Moving
forward in 2020, the chairman, Mr Teo, highlighted in the
2019 financial report that while BRC Asia is enjoying its local
presence in Singapore, there are plans to expand its footprint
overseas. The group looks to further grow its presence in
China and other Southeast Asian countries.
Corporate Management
Mr Seah Kiin Peng, current CEO of BRC Asia since
September 2018, has been on the forefront to scale BRC Asia
to greater heights, where he currently oversees the
development and implementation of the Group’s business
plans and strategies. Further, during his previous tenure as a
COO, he successfully steered BRC Asia through a trying
period between 2016 to 2018, along with completing the $200
million acquisition of Lee Metal Group Pte Ltd. This resulted
in greater economies of scale, operational efficiencies and cost
synergies that pivoted BRC Asia into a greater stand come
FY2019. Mr Teoh Ser Luck, Director and Chairman of Board
since November 2017, has held multiple positions across
Aviation, Oil & Gas and other sectors to bring his wealth of
expertise to the Group. Previously a Minister of State at
Ministry of Trade and Industry(MTI), he will be able to bring
his prior experience in advising the Group’s strategic direction
- to be aligned with the economic development charted by
MTI.
Business Overview
Fig 1. BRC Asia’s Geographical Segments
Fig 3. BRC Asia’s Shareholders
Source: Wallstreet Oasis
Fig 2. Projects completed
Marina Bay SandsPinnacle@Duxton
Resort World Sentosa
95%
5%

3. Geographical and Competitive Landscape
Under the helm and professional guidance of CEO Mr Seah
Kin Ping, BRC Asia has weathered through an arduous
journey since the first half of the 2010s with a maturing sector
and other competitors pouncing on any opportunity to gain
market share. Mr Seah conducted a strategic acquisition in July
2018, landing a $200 million acquisition with Lee Steel, a
recognised international trader of steel & steel related products
in Southeast Asia. This has propelled BRC Asia’s dominance
in the steel industry ever since, bumping its market share in
Singapore from 20-30% to almost 50% of the steel industry
amongst its local counterparts (Fig 4).
Singapore has seen an uplift in the construction industry, being
largely supported by a steady pipeline of public infrastructure
projects. Worthy mentions are Punggol Digital District, Tuas
Megaport, PUB's Tuas Water Reclamation Plant for the Deep
Tunnel Sewerage System Phase 2, North-South Corridor and
Thomson-East Coast Line that substantially increased the
amount of construction work carried out and demand for
reinforcing steel products. This investment in new
infrastructure awaits top-line gain for BRC Asia due to their
dominant market share in controlling the steel market in
Singapore.
With BRC Asia capturing majority of the contracts/orders in
Singapore and post-acquisition integration phase
of maximising their output is almost completed, the group is
looking beyond Singapore’s shores. In their strategic roadmap,
BRC Asia is proactively working towards expanding further
into the Asia market - particularly Malaysia and China.
Malaysia’s construction industry is expected to grow at a
5.53% CAGR from 2018 to 2023, as there were plans laid out
by the government through Vision 2020 (Fig 5). This is being
supported by huge projects such as the East Coast Railway
Link(ECRL) that routes a 640 km railway across Malaysia and
the MRT2 Sungai Buloh-Serdang-Putrajaya Line, showing
significant strength in the industry. Further, Malaysia’s
residential sector is projected to grow at an average of 3.7%
till 2027, which are certain key inputs that BRC Asia
recognises. The group intends to penetrate in the market by
justifying the tenders through their competitive advantage,
which can be seen as of today where 5% of their revenue
comes from Malaysia.
Up north in China, the construction industry is expected to
record a CAGR of 7.5% to reach CNY 9397.4 billion by 2024.
This is added by an increasing rate of urbanisation in
established cities like Shanghai, Beijing, Hubei and
Guangzhou - contributing to demand in residential and
commercial properties, which in turn results in growth in the
construction industry. On top of the sheer absolute size of the
market, steel prefabrication as a method of construction is
expected to gain popularity and enter a fast-growing phase
because of the government-led, nationwide push for green
construction. It is estimated that the steel prefabrication market
will grow at a CAGR of 10% by 2025, as the local government
Fig 4. Market share in Singapore
5.53% CAGR
Fig 5. Malaysia’s Construction Industry ($’
Billions)
Source: Globaldata Report

4. has mentioned that prefabricated buildings in the major cities
of Hunan Province will account for more than 30% of the new
buildings.
Further, following BRC Asia’s operations post acquisition, we
can identify that they have strengthened their economic moat
through (Fig 6):
1. Cost efficiencies along their supply chain of
fabrication
2. Lesser scrap metal generated due to better in-house
production
3. Reduction in wastage and pollution due to construction
activities
4. Significant competitive advantage amongst other steel
suppliers with just-in-time delivery, express services
and servicing an array of reinforcing products.
Progressive recovery in the construction industry…
Singapore’s construction industry has experienced a
turnaround from headwinds years back, as we can identify an
increase in total construction demand from 2018 to 2019 as
seen in Fig 7.
Further, the industry is expected to recover over the forecast
period 2019-2023 as reported by Singapore’s Department of
Statistics(DOS) and register positive growth, driven by
recovery in economic conditions and revival in the
manufacturing/service industry. The government's focus to
develop energy and transport infrastructure is expected to
drive the growth of the industry over the forecast period.
In current time, the increase in public sector construction
demand was driven by more industrial/institutional building
projects such as Jurong Town Corporation's ("JTC") business
park development and Singapore Institute of Technology's
("SIT") campus construction at Punggol Digital District.
Further, private sector construction demand for all
development types increased, supported by commercial
developments at Central Boulevard and Beach Road, Changi
Airport Terminal 2 upgrading, berth construction at Tuas
Mega Port and more to mention (Fig 8).
Albeit disruptions arising due to Covid-19
However, with the coronavirus pandemic causing a standstill
in economic activity, the construction industry was not spared
- from the one-month circuit breaker coupled with rising
infections/quarantines at foreign worker dormitories.
Moreover, there was a negative demand shock arising from
weak business and consumer confidence amid recessionary
fears, possibly impacting private sector demand for real estate.
This will result in an almost 8% drop in prices of private
estates, stemmed from poor consumer confidence and demand.
It is predicted that contraction will happen quarter-on-
quarter(q-o-q) till at least Q4 2020, if the economic outlook is
poor.
Industry Overview
Fig 7. Construction industry demand
Source: BRC Asia Quarterly Report 2020
JTC Business Park
SIT Campus
Tuas Port
Fig 8. Ongoing projects
Fig 6. BRC Asia’s Competitive moat

5. Though Phase 2 of the circuit breaker has commenced recently
as mandated by the government, potential relapses in Covid-
19 infection waves spreading in foreign labour dormitories can
exacerbate the shortage of manpower. This can potentially
cause way more disruptions in project management, sudden
suspension of works, shortage of manpower, disruption of
materials supply and hitting hard deadlines, etc.
Economists have hypothesised public/private sector
infrastructure projects are likely to be stepped up to kickstart
the Singapore economy, but that may be pushed back into
2021. Further, with projects slated to commence in the
remainder of the financial year, developers are likely to be
more prudent to maintain financial liquidity with respect to the
current uncertainty in the global economy.
1. Push to improve market share and expand further in
Asia
Singapore:
Public construction demand, expected to reach up to S$20.5
billion, contributes to about 60% of the projected demand for
the year. The group has reinforced their market share with their
supply of steel to the construction work carried out for major
infrastructure projects - Integrated Waste Management
Facility, Jurong Region MRT Line and Cross Island MRT Line
(Fig 10). These projects contribute to BRC Asia’ healthy book
order of $900 million, with durations lasting over 5 years.
Further, private construction demand comprising of the
remaining 40%, would allow BRC Asia to leverage on the
projects supported such as redevelopment of en-bloc sale sites
through their monopoly on supplying steel. Construction
activities for private residences, executive condominiums,
hotels and industrial properties have also been expanding since
2018. The favourable market condition is conducive for BRC
Asia to play out its scale and strength, benefiting both
customers and shareholders.
Furthermore, the planned expansion of the two Integrated
Resorts, Marina Bay Sands (MBS) and Resorts World Sentosa
(RWS) with a cited S$9 billion investment plan, could further
provide upside to private sector demand in the coming few
years, depending on their eventual construction timelines and
phasing. (Although RWS had initially projected 2025
completion date for their project)
Malaysia:
In Malaysia, the construction sector is expected to get a boost
from the government's substantial support provided in Budget
2020, for the development and maintenance of infrastructure
and social amenities. The sector is expected to grow by 3.7%
in 2020, compared to 1.7% in 2019. In addition to Malaysia,
other ASEAN countries are also catching up on their
infrastructure-related construction activities.
Investment Thesis
Fig 9. Construction sector shrinkage
Source: Straits Times
Jurong Line MBS & RWS Expansion
Cross Island Line
Fig 10. Steady pipeline of projects into the
future

6. China:
China’s Five-Year Plan has required penetration rate or the use
of steel prefabrication to increase to 30% in 2020(from 14%
currently). due to stringent environmental regulations,
resulting from concerns over increasing pollution. Therefore,
as this opens a new space within the Chinese construction
sector, BRC Asia can look to capitalise on this opportunity and
cement its footprint in China by relying on their brand
credibility, network and its expertise in prefabricated steel. If
successful, BRC Asia will be able to get a slice of the pie in
China’s construction sector through their extensive network
via Rui Gang Lian Group, with the prefabricated buildings
market and steel structure market worth around US$300
Billion and USD$50 Billion respectively.
With China's State Council prioritizing stabilizing land and
housing prices for the property market in 2020, this would
directly result in the forecast for steel demand generated for
the property and construction sector to remain stable in 2020.
In total, it is highlighted that 35% of China’s total steel
consumption is contributed by the property construction and is
likely to remain the core driver of steel demand in 2020.
We posit that management has identified such opportunities in
their “Building Better, Faster & Cheaper” campaign and this
is a lucrative opportunity for shareholders to stay vested on.
2. Strategic Acquisition on Amsteel Mills to boost current
capabilities
BRC Asia’s parent - ESteel Group has made a key acquisition
for Amsteel Mills Sdn Bhd at US$128 million, back in June
2020. The hot-briquetted iron plant will allow BRC Asia to
have their full production capacity, being able to smelt the raw
materials and roll out fabricated pipes, etc for construction use.
We opine this to be a strategic play in the upcoming years as
BRC Asia plans for their ‘Building Better, Faster & Cheaper’
campaign, seeking to branch out their products and services in
the neighbouring regions.
With revenue from Malaysia comprising about 3% of their
total revenue, the campaign will seek to enhance their
productive capabilities expanding into the Malaysia market.
This is due to the fact that Amsteel is strategically located in
the Klang Valley in Peninsular Malaysia, its proximity to
Malaysia's premier port, Port Klang. This ideal location
maximises the ability of catering to requirements by domestic
and international markets. As a result, commitment towards
prompt and reliable delivery services will enable both local
and international acceptance and customer satisfaction in its
products and services.
Further, such strategic acquisitions has always been the
objective of the group - where they have been able to identify
themselves as a product differentiator. Through enhancement
of their capabilities, they have been able to provide their
product and services at a lower cost along with have their very
own supply chain that has been crucial in disruptive operations
with respect to a Covid-19 environment. Through an
Fig 11. Prefabrication benefits
Fig 12. China’s growth q-o-q
Fig 13. Acquisition of Amsteel Mills
Fig 14. Location analysis of Port Klang

7. interconnected realm from Esteel providing the raw materials,
to BRC Asia fabricating products and delivery to customers,
they provide holistic end-to-end solutions that will not be
hampered by disrupted supply chains. As a result, this will
allow the Group to be more defensive in current operations. It
is to note that they can swiftly deliver their customised
products within 3 working days to the construction site, close
to 2 times faster than their counterparts.
3. Comfortable margins heading into uncertainty and
recovery of projects
BRC Asia boasts comfortable margins upon release of their
1HFY20 results, experiencing growth in their gross profits,
EBIT, PBT and net profit margins. Further, they record a 97%
increase in net profits prior to the circuit breaker. In contrast,
their stock price has been beaten down heavily and recently
heading towards the downturn of its lowest at $1.00. This is
due to social distancing measures implemented by the
government, construction activity has come to a halt and only
5% of the industry is currently in operation, working on critical
infrastructure projects that are deemed essential. This has
resulted in a bleak outlook of the quarter in 2020 from March
to May, possibly even generating close to zero revenue. We
believe that the stock price has taken too much of a throwdown
relative to their business potential, as they have one of the
greatest margins amongst their peers.
Further, there has been a pickup in the construction sector ever
since BCA has granted a gradual resumption of construction
work, starting from 2nd June 2020. With 300 projects being
approved to resume work along with 250 more projects
pending for further approval, the construction’s grim outlook
will turn slightly positive as we head towards 3Q and 4Q2020
- this being in alignment with management’s expectations.
The Group also expects that some of its customers would be
more adversely impacted by the CB measures than others,
which may result in higher credit risks going forward.
Accordingly, the Group had recorded an increase in allowance
for expected credit losses, at 31 March 2020. This shows the
Group’s capability to think prudent and have great foresight
into the future, and such strengths will allow them to weather
the current storm and come out stronger in their market
position and financial standing with time to come.
Fig 15. 1HFY20 Financial Updates
Fig 17. BCA resumption of projects
Source: BCA

8. Financial margins improving with each financial year
With acquisition of Esteel, BRC Asia has translated the
synergy it has with the acquiree into improved profitability
ratios. Further, with more strategic acquisitions to come, we
forecast slightly better margins towards the next few financial
years.
Debt/Equity to improve gradually with time
Debt/Equity experienced a hefty increase due to the strategic
acquisition of Esteel which poses BRC Asia to be in a
leveraged area. However, we believe that management has
understood such a concern which we can see a decrease in
Debt/Equity at FY2019. As such, we have also projected a
lower Debt/Equity to come as the group has stated on their
reports on certain loans to be cleared by FY2020, enabling
them to be in a better standing position moving forward.
Return of Equity showing a huge upside
One particular ratio to note – Return of Equity has seen a rise
in the 12% region, its highest in the past 5 Financial Years.
This indicates strong returns with the investments made by the
shareholders, and this is a strong figure when comparing to
other growth stocks. We posit that ROE will look strong with
time to come with management’s capabilities in place.
Financial Analysis
0.00%
5.00%
10.00%
2016 2017 2018 2019 2020F 2021F 2022F 2023F
Fig 18. Gross Profit Margins
0.00%
5.00%
2016 2017 2018 2019 2020F 2021F 2022F 2023F
Fig 19. Net Profit Margins
0.00
1.00
2.00
2016 2017 2018 2019 2020F 2021F 2022F 2023F
Ratios 2016 2017 2018 2019 2020F 2021F 2022F 2023F
Profitability
Operating cash flow ($ Million) 16,147 31,393 (7,656) 81,997 106,682 60,240 61,139 62,957
Gross Profit Margin 8.54% 6.80% 8.35% 8.67% 9.00% 9.50% 9.50% 9.50%
EBIT Margin 3.23% 1.65% 3.66% 5.24% 6.00% 6.50% 6.50% 6.50%
PBT Margin 2.92% 1.16% 2.75% 4.20% 5.09% 5.72% 5.73% 5.75%
Net profit Margin 2.40% 0.79% 2.16% 3.45% 3.94% 4.43% 4.44% 4.45%
ROA 3.10% 0.77% 1.76% 4.54% 4.95% 5.50% 5.44% 5.40%
ROE 4.86% 1.47% 5.19% 12.00% 12.92% 13.75% 13.10% 12.53%
Liquidity
Current Ratio 2.28 1.55 1.53 1.59 1.47 1.52 1.56 1.59
Quick Ratio 1.08 0.74 0.66 0.80 0.78 0.83 0.86 0.88
Cash Ratio 0.16 0.18 0.12 0.20 0.25 0.28 0.31 0.33
Activity
Total Asset Turnover 1.29 0.97 0.82 1.32 1.26 1.24 1.23 1.21
Days of Inventory Held 105 140 189 101 100 100 100 100
Days of Receivables Outstanding 74 90 119 81 80 80 80 80
Leverage
Debt/Equity 0.57 0.92 1.95 1.64 1.61 1.50 1.41 1.32
Debt/EBITDA 5.45 12.07 14.57 7.08 6.73 6.20 6.09 5.97
Shareholder's Ratio
Earnings Per Share 0.03 0.01 0.06 0.14 0.16 0.18 0.18 0.19
Divident Payout Ratio 48.01% 238.38% 0.00% 7.38% 51.50% 48.01% 48.01% 48.01%
Fig 20. Debt/Equity Ratio

9. We believe that BRC Asia has a hefty amount of upside,
having a fair value/share of $1.86.
DCF Model
To calculate the fair value per share of BRC Asia, we
employed a DCF model that was forecasted over the next 4
years. Our revenue projections will be pegged closely towards
the CAGR of the construction sector that incorporates
Malaysia, China and Singapore, where growth of BRC Asia is
dependent on. On the cost front, COGS, SG&A, Capex, etc
have been projected relative to rising cost synergies that BRC
Asia has an economic moat, post-acquisition of Lee Metals.
The DCF is also sensitive to a few factors:
1. Weighted average cost of capital (WACC)
Weighted average cost of capital was calculated through
identification of key inputs that comprises equity and debt
cost. For equity cost, Beta calculation employed a linear
regression of BRC Asia’s stock price was regressed against the
returns of the STI Index. CAPM model was used with risk-free
rate being the 5 Year Singapore Savings Bond interest rate and
the market risk premium using the STI returns over the past 5
years, adjusted with a market premium. For debt cost, a
weighted average interest rate of BRC Asia was used for its
various debt incurred. Tax shield was also taken into account
as BRC Asia pays for its taxes along all operations.
2. Projections along the Income statement
Revenue growth for BRC Asia was mainly pegged to the
weighted average of CAGR growth of the construction
industry - comprising China, Malaysia and Singapore, as these
are the markets that BRC Asia will be dependent on for
revenue. We have also projected minor improvements in their
cost margins due to their strategic acquisitions that resulted in
increased synergies/cost improvements in their operational
capabilities, which we are confident will improve more with
time.
3. Terminal Growth
Terminal growth was capped at 2%, as the construction is a
mature industry with little room for growth. Growth mainly is
attributed to housing tenders based on land usages on both
private and public, that is close to saturation point. As a result,
we have used a more conservative percentage as compared to
the usual ~3% terminal growth rate.
1. Relapse of coronavirus outbreak
As of 19th July 2020, cases in dormitories are still in the high
200s and should numbers remain in that range, there is a high
possibility that Building and Construction Authority(BCA)
will not endorse full operational capacity in construction sites,
so as to mitigate the spread of COVID-19. Moreover, local
cases have been rising to double digits and should another
Valuation
Key Risks
WACC assumptions Comments
Cost of Equity 8.73%
Risk Free Rate 0.90% Singapore 10 year Bond yield
Beta 0.86 Regress 5Y history.
Market risk premium 9.10% 10%-0.9%, Using STI ETF
Cost of Debt 2.32%
Pre-tax cost of debt 3.00%
Weighted average of future interest rate on
debt(Blended average as in BRC report)
Tax Rate 22.61%
Market Cap (SGD'000) 296,335 Brokerage Platforms
Total Debt (SGD'000) 306,497 BRC Asia Annual Report
WACC 5.47%
WACC Adjustment 5.00% Subjected to macreconomic risks
Final WACC 10.47%
Fig 21. WACC Calculation
Sum of Free Cash Flow 169,011
Terminal Growth Rate 2.00%
Terminal Free Cash flow to Firm 28,909
Terminal Value 833,133
Present Value of Terminal Value 506,402
Enterprise Value 675,412
Less: Debt (306,497)
Add: Cash 65,778
Less: Non-Controlling Interests -
Equity Value 434,693
Shares outstanding 233,335
Share Price 1.863
EV/EBITDA 10.05
Fig 22. Fair value/Share Calculation

10. lapse of infections were to occur, Singapore has a high
possibility of returning back to Phase 1 of Circuit Breaker,
crippling operations to a huge extent. Such entailed risks can
cause the construction sector to slump further, affecting BRC
Asia’s topline by a greater margin since they have mentioned
that they have received close to zero revenue during Phase 1
of Circuit Breaker.
2. Reduction in consumer confidence levels
With about 40% of the construction sector being dependent on
private construction, low consumer confidence for private
properties will also cause a contraction in tender bids to build
en-bloc private properties for consumers. This in turn will
affect BRC Asia to a certain extent as they are highly
dependent on the industry as a whole for revenue growth.
3. Fluctuations in steel prices
With demand and supply being uncertain, commodity prices
have become more volatile in an uncertain macroeconomic
environment.
Disclaimer
This report is published solely for informational purposes and should not be taken as financial advice to warrant a buy/sell
of related financial instruments. You may wish to seek advice from a financial advisor/professional regarding the
suitability of the securities mentioned above, where your investment objectives, financial situation and needs are taken
into consideration and subsequent follow-up action is conducted. Further, any opinion expressed in this research is
subjected to change without any notice.
Fig 23. Coronavirus cases in Singapore

11. 3 Statement Model Projection
Income Statement 2016 2017 2018 2019 2020F 2021F 2022F 2023F
Revenue 347,774 312,621 569,491 916,129 920,000 938,400 957,168 976,311
COGS (318,070) (291,368) (521,938) (836,717) (837,200) (849,252) (866,237) (883,562)
Gross Profit 29,704 21,253 47,553 79,412 82,800 89,148 90,931 92,750
G&A expenses (11,811) (11,455) (18,475) (18,901) (18,400) (18,768) (19,143) (19,526)
Other operating expenses (7,215) (4,931) (4,857) (9,114) (9,200) (9,384) (9,572) (9,763)
Impairment loss on trade receivables (2,541) (2,538) - - - -
Share of results of joint venture 550 1,746 777 1,282 - - - -
Share of results of associates - (1,449) (1,605) (2,131) - - - -
EBIT 11,228 5,164 20,852 48,010 55,200 60,996 62,216 63,460
Finance costs (1,085) (1,539) (5,202) (9,575) (8,365) (7,325) (7,325) (7,325)
Profit before tax 10,143 3,625 15,650 38,435 46,835 53,671 54,891 56,135
Income tax expense (1,802) (1,152) (3,607) (6,863) (10,591) (12,136) (12,412) (12,693)
Profit net of tax 8,341 2,473 12,043 31,562 36,245 41,535 42,479 43,442
Earnings from discontinued operations - - 253 - - - - -
Net profit 8,341 2,473 12,296 31,562 36,245 41,535 42,479 43,442
Net gain/(loss) through comprehensive items (570) (597) 614 64 - - - -
Finalised net profit 7,771 1,876 12,910 31,626 36,245 41,535 42,479 43,442
Assumptions
Cost of Sales as % of Revenue 91.46% 93.20% 91.65% 91.33% 91.00% 90.50% 90.50% 90.50%
G&A as % of Revenue 3.40% 3.66% 3.24% 2.06% 2.00% 2.00% 2.00% 2.00%
Operating expenses as % of Revenue 2.07% 1.58% 0.85% 0.99% 1.00% 1.00% 1.00% 1.00%
Tax Rate 17.77% 31.78% 23.05% 17.86% 22.61% 22.61% 22.61% 22.61%
Revenue Growth -10.11% 82.17% 60.87% 0.42% 2% 2% 2%
Balance Sheet 2016 2017 2018 2019 2020F 2021F 2022F 2023F
Non-current Assets
PPE 77,679 89,136 148,978 134,110 147,151 149,963 155,338 164,009
Investment properties - - 2,471 2,402 2,335 2,270 2,206 2,145
Interest in joint venture 10,162 11,650 12,116 7,220 7,220 7,220 7,220 7,220
Interest in associates - 6,714 11,477 18,951 18,951 18,951 18,951 18,951
Available for sale financial asset/Investment securities 2,243 1,614 109 84 84 84 84 84
Loan to investee company 4,321 1,500 - - - - - -
Current Assets
Inventories 91,445 111,433 270,249 231,891 229,370 232,672 237,325 242,072
Trade receivables, prepayments and deposits 70,450 76,793 185,551 203,445 201,644 205,677 209,790 213,986
Derivatives 543 - - 656 656 656 656 656
Asset held for sale - - 26,711 30,049 30,049 30,049 30,049 30,049
Cash and cash equivalents 11,938 23,989 41,080 65,778 95,102 108,266 118,598 126,005
Total Assets 268,781 322,829 698,742 694,586 732,562 755,807 780,218 805,177
Current Liabilities
Trade and other payables & Contract liabilities 33,355 69,492 61,388 71,187 114,685 116,336 118,663 121,036
Loans and borrowings 39,613 52,376 255,838 245,839 245,839 245,839 245,839 245,839
Provisions for onerous contracts & restoration costs 2,592 11,667 20,066 8,668 8,668 8,668 8,668 8,668
Derivatives - 344 325 - - - - -
Current income tax liabilites 780 2,808 5,115 9,064 9,064 9,064 9,064 9,064
Non-current Liabilities
Provisions for retirement benefits 427 408 993 1,003 1,003 1,003 1,003 1,003
Loans and borrowings 12,135 10,772 82,265 60,658 60,658 60,658 60,658 60,658
Deferred tax liabilities 8,267 6,785 12,616 12,139 12,139 12,139 12,139 12,139
Loan from immediate holding company - - 23,100 23,100 - - - -
Total Liabilities 97,169 154,652 461,706 431,658 452,056 453,707 456,034 458,407
Equity
Share capital 68,011 68,011 125,001 125,001 125,001 125,001 125,001 125,001
Treasury shares (1,044) (1,105) (1,105) (1,105) (1,105) (1,105) (1,105) (1,105)
Other reserves (1,193) (1,879) (2,218) (2,154) (2,154) (2,154) (2,154) (2,154)
Retained earnings 105,833 102,728 115,358 141,186 158,764 180,358 202,442 225,028
Non-controlling interests 5 422 - - - - - -
Total Equity 171,612 168,177 237,036 262,928 280,506 302,100 324,184 346,770
Total Equity and Liabilities 268,781 322,829 698,742 694,586 732,562 755,807 780,218 805,177
Check = Balance - - - -
Assumptions
Convertible bonds didn’t convert to shares
Days of inventory held 104.94 139.59 188.99 101.16 100.00 100.00 100.00 100.00
Days of receivables outstanding 73.94 89.66 118.92 81.06 80.00 80.00 80.00 80.00
Days of payables outstanding 38.28 87.05 42.93 31.05 50.00 50.00 50.00 50.00
Appendix

12. Cash flow statement 2016 2017 2018 2019 2020F 2021F 2022F 2023F
Profit before tax 10,143 3,625 15,920 38,435 46,835 53,671 54,891 56,135
Adjustments for:
Share of results of joint venture - 12,746 (777) (1,282) - - - -
Share of results of associates - 1,449 1,605 2,131 - - - -
Amoritisation & (Gain) on disposal of club memberships - - (443) - - - - -
Depreciation of investment properties - - 23 69 67 65 63 62
Depreciation of PPE 6,593 7,646 10,829 12,938 11,959 12,188 12,625 13,329
Impairment loss on trade receivables, net 229 16 2,541 2,538 - - - -
Fair value changes on trade receivables subjected to provisional pricing - - - 1,349 - - - -
Fair value changes on derivatives, net (543) 887 380 (981) - - - -
Loss/(gain) on PPE (including write off and impairment loss) 85 2 (18) 2,400 - - - -
Goodwill on acquisition of subsidiary written off - - 55 - - - - -
Loss on disposal of investment in a subsidiary - 863 - - - - -
Bad debts (recovered)/written off (102) (34) 14 (40) - - - -
Reversal of/(provision) for onerous contracts (545) 9,075 (11,983) (12,849) - - - -
Provision for retirement benefits 18 15 22 10 - - - -
Provision for restoration costs - - - 1,452 - - - -
Unrealised exchange difference 125 (279) (869) 106 - - - -
Interest expense 1,085 1,539 5,202 9,575 - - - -
Interest income (63) (621) (1,153) (1,040) - - - -
Dividend income from investment securities (2) (5) (5) (2) - - - -
Operating cash flows before WC changes 16,473 21,569 22,206 57,809 58,862 65,924 67,579 69,526
Trade receivables, prepayments and deposits 4,971 (6,325) (7,423) (19,014) 1,801 (4,033) (4,114) (4,196)
Inventories 946 (19,988) (42,036) 38,358 2,521 (3,302) (4,653) (4,747)
Development costs for asset held for sale - - (211) (3,338) - - - -
Trade and other payables and contract liabilities (6,243) 36,137 19,808 8,182 43,498 1,651 2,327 2,373
Cash flow generated from operations 16,147 31,393 (7,656) 81,997 106,682 60,240 61,139 62,957
Income taxes paid (2,563) (606) (3,075) (2,704) (10,591) (12,136) (12,412) (12,693)
Retirement benefits paid (80) (32) (186) - - - - -
Net cash flows generated from operating activities 13,504 30,753 (10,917) 79,293 96,091 48,104 48,727 50,264
Investing activities
Purchase of PPE (11,749) (19,318) (26,865) (2,298) (25,000) (15,000) (18,000) (22,000)
Acquisition of non-controlling interests - - (9) - - - - -
Proceeds from disposal of PPE 71 80 586 160 - - - -
Proceeds from disposal of club memberships - - 810 - - - - -
Net cash inflow on disposal of a subsidiary - - 936 - - - - -
Capital contribution from non-controlling interest of a subsidiary 65 62 840 - - - - -
Net cash outflow from acquisition of subsidiaries - - (142,334) - - - - -
Proceeds from disposal of investment securities - (1,500) 1,500 - - - - -
Proceeds from repayment of loan from investee company - (1,500) 1,500 - - - - -
Interest received 63 621 694 198 - - - -
Dividend income from investment securities 2 5 5 2 - - - -
Dividend income from an associate - 120 - 1,050 - - - -
Long term loan to an associate company (2,300) (2,459) (4,632) (10,425) - - - -
Net cash flow used in investing activites (14,131) (23,889) (166,969) (11,313) (25,000) (15,000) (18,000) (22,000)
Financing activities
Repayment of finance lease obligations (355) (61) (2,504) (3,093) - - - -
Proceeds/(Repayment) of bills payable, net (10,920) (2,693) 52,552 (15,057) - - - -
Proceeds from bank loans 14,732 13,956 129,311 67,290 - - - -
Repayment of bank loans - - (50,000) (80,746) - - - -
Proceeds from issuance of shares - - 46,990 - - - - -
Proceeds from loan from immediate holding company, net - - 23,100 - (23,100) - - -
Dividends paid on ordinary shares (3,731) (4,472) - (2,333) (18,667) (19,941) (20,394) (20,856)
Interest paid (1,085) (1,539) (4,490) (9,410) - - - -
Net cash flow generated from financing activities (1,359) 5,191 194,959 (43,349) (41,767) (19,941) (20,394) (20,856)
Net increase in cash and cash equivalents (1,986) 12,055 17,073 24,361 29,324 13,163 10,333 7,407
Cash and cash equivalents at beginning of year 13,940 11,938 23,989 41,080 65,778 95,102 108,266 118,598
Effects of FX changes (16) (4) 18 67 - - - -
Cash and cash equivalents at end of year 11,938 23,989 41,080 65,778 95,102 108,266 118,598 126,005
Acquisition of Lee Metal group - Some assets in cashflow statement
linked to cash . 14 in 2018 annual report… As result, most statements
are then linked towards line 118
Same thing for disposal of Nuformsystem , as per line 115
Assumptions
Depreciation of investment properties as % of asset 2.79% 2.79% 2.79% 2.79% 2.79%
Depreciation as % of Gross PPE 7.37% 7.05% 6.16% 9.48% 7.52% 7.52% 7.52% 7.52%
Payout Ratio 48.01% 238.38% 0.00% 7.38% 48.01% 48.01% 48.01% 48.01%

13. Debt Schedule Projections
DCF Projection
Debt Schedule 2019 2020F 2021F 2022F 2023F
Bills payable to banks 238,704 238,704 238,704 238,704 238,704
Additional debt taken - - - - -
Bills payable to banks, end of FY 238,704 238,704 238,704 238,704 238,704
Interest Expense 5,968 5,968 5,968 5,968 5,968
Interest Rate 2.5% 2.5% 2.5% 2.5% 2.5%
Financial lease obligations 1,393 1,393 1,393 1,393 1,393
Additional debt taken - - - - -
Financial lease obligations, end of FY 1,393 1,393 1,393 1,393 1,393
Interest Expense 40 40 40 40 40
Interest Rate 2.9% 2.9% 2.9% 2.9% 2.9%
Bank loans 65,855 65,855 65,855 65,855 65,855
Additional debt taken - - - - -
Bills payable to banks, end of FY 65,855 65,855 65,855 65,855 65,855
Interest Expense 1,317 1,317 1,317 1,317 1,317
Interest Rate 2% 2% 2% 2% 2%
Loan from immediate holding company 23100 23,100 - - -
Additional debt taken/paid - (23,100) - - -
Loan from immediate holding company, end of FY 23,100 - - - -
Interest Expense 1,039.50 1,039.50 - - -
Interest Rate 4.5% 4.5% 4.5% 4.5% 4.5%
Total Interest Expense 8,365 8,365 7,325 7,325 7,325
Ratios 2016 2017 2018 2019 2020F 2021F 2022F 2023F
Profitability
Operating cash flow ($ Million) 16,147 31,393 (7,656) 81,997 106,682 60,240 61,139 62,957
Gross Profit Margin 8.54% 6.80% 8.35% 8.67% 9.00% 9.50% 9.50% 9.50%
EBIT Margin 3.23% 1.65% 3.66% 5.24% 6.00% 6.50% 6.50% 6.50%
PBT Margin 2.92% 1.16% 2.75% 4.20% 5.09% 5.72% 5.73% 5.75%
Net profit Margin 2.40% 0.79% 2.16% 3.45% 3.94% 4.43% 4.44% 4.45%
ROA 3.10% 0.77% 1.76% 4.54% 4.95% 5.50% 5.44% 5.40%
ROE 4.86% 1.47% 5.19% 12.00% 12.92% 13.75% 13.10% 12.53%
Liquidity
Current Ratio 2.28 1.55 1.53 1.59 1.47 1.52 1.56 1.59
Quick Ratio 1.08 0.74 0.66 0.80 0.78 0.83 0.86 0.88
Cash Ratio 0.16 0.18 0.12 0.20 0.25 0.28 0.31 0.33
Activity
Total Asset Turnover 1.29 0.97 0.82 1.32 1.26 1.24 1.23 1.21
Days of Inventory Held 105 140 189 101 100 100 100 100
Days of Receivables Outstanding 74 90 119 81 80 80 80 80
Leverage
Debt/Equity 0.57 0.92 1.95 1.64 1.61 1.50 1.41 1.32
Debt/EBITDA 5.45 12.07 14.57 7.08 6.73 6.20 6.09 5.97
Shareholder's Ratio
Earnings Per Share 0.03 0.01 0.06 0.14 0.16 0.18 0.18 0.19
Divident Payout Ratio 48.01% 238.38% 0.00% 7.38% 51.50% 48.01% 48.01% 48.01%
WACC assumptions Comments
Cost of Equity 8.73%
Risk Free Rate 0.90% Singapore 10 year Bond yield
Beta 0.86 Regress 5Y history.
Market risk premium 9.10% 10%-0.9%, Using STI ETF
Cost of Debt 2.32%
Pre-tax cost of debt 3.00%
Weighted average of future interest rate on
debt(Blended average as in BRC report)
Tax Rate 22.61%
Market Cap (SGD'000) 296,335 Brokerage Platforms
Total Debt (SGD'000) 306,497 BRC Asia Annual Report
WACC 5.47%
WACC Adjustment 5.00% Subjected to macreconomic risks
Final WACC 10.47%

14. DCF Projection 2020F 2021F 2022F 2023F
EBIT 55,200 60,996 62,216 63,460
Less: Cash Taxes (10,591) (12,136) (12,412) (12,693)
Tax Rate 22.61% 22.61% 22.61% 22.61%
Plus: D&A 12,026 12,253 12,688 13,391
Less: Capex (25,000) (15,000) (18,000) (22,000)
Less: Increase in Inventories 2,521 (3,302) (4,653) (4,747)
Less: Increase in receivables and prepayments 1,801 (4,033) (4,114) (4,196)
Add: Increase in payables, accrued liabilities 43,498 5,373 8,176 8,993
Free Cash flow to Firm 79,456 44,151 43,901 42,209
Discounted Years 1 2 3 4 5
Discount Factor 0.91 0.82 0.74 0.67 0.61
Discounted Free Cash flow to Firm 71,926 36,179 32,564 28,342
Growth Rate -49.70% -9.99% -12.97%
Sum of Free Cash Flow 169,011
Terminal Growth Rate 2.00%
Terminal Free Cash flow to Firm 28,909
Terminal Value 833,133
Present Value of Terminal Value 506,402
Enterprise Value 675,412
Less: Debt (306,497)
Add: Cash 65,778
Less: Non-Controlling Interests -
Equity Value 434,693
Shares outstanding 233,335
Share Price 1.863
EV/EBITDA 10.05