• Post a combination of new share placement and married deals, Hong Leong Asia will have a 20% stake in BRC Asia, becoming its 2nd largest shareholder.
• We see synergistic collaboration in
  1. increased automation opportunities in PPVC building technology locally, and
  2. joint overseas expansion.
• We estimate 8% FY22F EPS accretion for Hong Leong Asia should the deal materialise. Reiterate ADD and target price of S$1.05.

Hong Leong Asia to Become BRC Asia’s 2nd Largest Shareholder

• Post a combination of new share placement and married deals with 5 other existing shareholders, Hong Leong Asia (SGX:H22) will hold a 20% stake (3.6% stake previously) in BRC Asia (SGX:BEC), becoming its 2nd largest shareholder.
• Subscription price of S$1.48/share is a 2.06% discount to Friday’s VWAP, with total new investment cost of S$68.1m. We estimate the deal values BRC Asia at ~9x CY22F P/E. Hong Leong Asia may request to nominate 2 seats to BRC Asia’s Board of Directors.
• The proposed subscription will require BRC Asia’s EGM approval; Esteel Enterprise, the controlling shareholder of BRC Asia with a 69% stake currently, has undertaken to vote in favour of the resolution. The transaction is expected to close on 31 Dec 2021.

Room for Synergistic Collaboration Both Locally and Abroad

• We are positive on this deal to some 12.75% share dilution for BRC Asia.

Reiterate ADD and Target Price of S$1.05

• While we see near-term weakness in 2H21F, Hong Leong Asia remains on track to achieve 47% y-o-y growth in PATMI in FY21F to S$60m. Reiterate ADD on Hong Leong Asia with SOP-based target price of S$1.05, which implies 10.5x CY22F P/E.
• Potential catalysts include faster-than-expected like BRC Asia as it is a proxy for Singapore’s construction sector given its likely strong dividend yield for FY9/21F exceeding 5.5%. Read also recent report BRC Asia - CGS-CIMB Research 2021-08-05: Light At The End Of Tunnel?

Source: CGS-CIMB Research - 30 Aug 2021