Civmec Limited’s (S$0.94, unchanged) FY24 results came in-line with expectations with overall revenue and net profit coming in at 109%/105% of our forecast. Revenue rose 24.4% to A$1.0bln from increased activity levels across the Group, in particular the Resources (+29% yoy) and Infrastructure, Marine & Defence (+15% yoy) segments. Gross profit margin narrowed slightly by 1.6pp to 11.5% from a change in business mix and timing of revenue recognition.
Overall, net profit for FY24 came in at A$64.4mln, an increase of 11.6% yoy. Management has declared an increase in final dividends to 3.5 A cts (FY23: 3 A cts), bringing full year dividends to 6 A cts (FY23: 5 A cts), representing a 47% DPR and 5.6% yield.
Going forward, Civmec has completed its redomicile process, and the NewCo shares have commenced trading on 5th Sep. The change in domicile will provide benefits such as alignment to “local content” assessment criteria and greater tendering opportunities as part of Australia’s sovereign defence industrial capability.
We also see it as an opportunity for Civmec to close the valuation gap with its Australian peers, a potential re-rating catalyst. The establishment of two new facilities in Pilbara and Gladstone will increase the number of maintenance opportunities available.
Opportunities to replenish orderbook of A$853mln
While order book has seen an 18% drop yoy to A$853mln, management maintains their view that opportunities remain plentiful for order book replenishment and tendering activity continues to be strong across all sectors. Civmec’s orderbook provides revenue visibility for most of the next 12 months. The company is increasingly regarded by its clients as the go-to contractor to reliably deliver, particularly on time-critical services. Civmec sees strong opportunities in the maintenance space with their newly-enhanced presence in Port Hedland and Gladstone. The Port Hedland facility is strategically located at the world’s largest iron ore export port.
Better-positioned to undertake defence programs
We think that Civmec is currently in a better position than before to support future shipbuilding programs in the Australian defence sector. Several points to note: 1) Civmec has re-domiciled to Australia, 2) successful completion of the SEA1180 OPV Program, 3) world-class shipbuilding facilities (Civmec’s head office is located within the Henderson naval precinct and it is the largest heavy engineering facility in Australia), and 4) forming a JV to tender for the construction of up to 8 Landing Craft Heavy (LCH) ships under LAND8710 Phase 2. Civmec’s JV partner Austal was recently nominated as the Commonwealth’s strategic shipbuilder and has already won the contract to build 18 Landing Craft Medium (LCM) ships under LAND8710 Phase 1, placing the JV in good stead to continue progress onto the second phase.
Attractive valuations, growth ahead
Valuations are attractive at just 7.9x forward P/E, 1.1x P/B and 5.6% dividend yield. Civmec has either maintained or increased dividends annually since its IPO in 2012 and with a stable net cash position, we believe there is still room for Civmec to increase its DPR in the future, translating into higher dividends with improved earnings. Trading at a discount to many of its Australian peers, a change in domicile will be the first step towards closing the valuation gap.
Management notes that the current pipeline of work remains at historical highs, with over A$10bln of priced opportunities being tracked outside of naval shipbuilding. As pointed out by CEO Patrick Tallon and Chairman James Fitzgerald: “As we celebrate 15 years of successful operations in Australia, the Group’s outstanding financial performance and ability to deliver over A$1 billion in revenue this year is a testament to our Group’s operational excellence. The change in domicile of the Group will broaden the future opportunities that will align with Civmec’s strategic growth plans.”
Capitalized at S$477mln, Civmec trades at defensively low valuations of 7.9x forward P/E and 1.1x P/B. We maintain Accumulate with an unchanged target price of S$1.20, pegged to 10.1x forward P/E (15% discount to its larger-cap peers).
The broker is Lim & Tan Securities with a recommendation to Accumulate the stock and a target price of S$1.20.
Thank you
