Date of Report: October 22, 2024
Broker: UOB Kay Hian Private Limited
Company Overview
Civmec is an integrated, multi-disciplined construction and engineering services provider. The company operates across multiple sectors, including oil and gas, metals and minerals, infrastructure, and defense markets. Listed on the Singapore Exchange, Civmec’s main operations are in Australia, with a strong focus on serving major resource companies.
Stock Data
- Share Price: S$1.04
- Target Price: S$1.40 (6% increase from previous target of S$1.32)
- Market Capitalization: S$528.9 million (US$402.8 million)
- Bloomberg Ticker: CVL SP
- Shares Issued: 508.5 million
- 52-week High/Low: S$1.09/S$0.73
Major Shareholders
- James Finbarr Fitzgerald: 19.5%
- Patrick John Tallon: 19.5%
Price Performance (YTD)
- 1 Month: 6.7%
- 3 Months: 13.7%
- 6 Months: 34.2%
- 1 Year: 35.9%
Positive Market Conditions
Since the announcement of major stimulus measures by China’s central bank on September 24, 2024, the S&P/ASX 200 Materials Index has rallied by about 8%. This development has had a positive impact on Civmec’s customers, who are major resource companies in Australia. With the Australian dollar strengthening against the Singapore dollar, Civmec stands to benefit from improved demand and favorable currency exchange rates.
Strong Financial Performance in FY24
- Revenue: A$1.03 billion (up 24% year-on-year)
- Net Profit: A$64 million (up 12% year-on-year, beating estimates by 2%)
- Dividend: Increased total FY24 dividend by 20% to 6 Australian cents per share
- Dividend Payout Ratio: 47%, indicating ample room for higher dividends in the future
- Net Cash Position: A$25 million, a 76% year-on-year increase
Key Segments
- Resources: Contributed about 80% of group operating income in FY24. The sector experienced a 29% increase in activity levels.
- Infrastructure, Marine & Defence: Contributed approximately 15% of group operating income. The sector grew by 15% in FY24.
Strategic Developments
Civmec is focusing on enhancing its engineering design capabilities, particularly in the production of original equipment manufacturer (OEM) material handling machines. The company is currently the only Australian entity offering a full in-house service across the entire lifecycle of these machines. Additionally, Civmec is pursuing strategic partnerships in the defense sector, including the potential involvement in Australia’s LAND8710 landing craft heavy shipbuilding program.
Financial Projections (FY25-FY27)
- Net Turnover: Expected to grow from A$1.1 billion in FY25 to A$1.25 billion in FY27
- EBITDA: Projected increase from A$122 million in FY25 to A$136 million in FY27
- Net Profit: Anticipated rise from A$67 million in FY25 to A$74 million in FY27
- Earnings Per Share (EPS): Expected to grow steadily, reaching 14.5 Australian cents by FY27
Valuation & Recommendation
UOB Kay Hian maintains a BUY recommendation on Civmec, with a revised target price of S$1.40, representing a 34.6% upside. The target price is pegged to a 12x PE ratio for FY25, reflecting Civmec’s improved track record and strong financial outlook. Currently, the stock is trading at a significant discount (53%) compared to its Australian peers, which have an average PE ratio of 19x for FY25.
Key Growth Drivers
- Demand Recovery: Boosted by stimulus measures in China, which have driven a rise in commodity prices and activity levels among Civmec’s resource-sector clients.
- Favorable Currency Exchange: Strengthening of the Australian dollar against the Singapore dollar, which could lead to higher earnings and dividends for Singaporean investors.
- Robust Order Book: As of FY24, Civmec’s order book stood at over A$853 million, supported by active tendering across all sectors.
- Defense Sector Opportunities: Continued focus on strategic defense projects, including a potential A$25 billion worth of works through the LAND8710 program.
Risks
- Commodity Price Volatility: Civmec’s revenue is closely tied to the resource sector, which could be impacted by fluctuations in commodity prices.
- Currency Risk: Although currently favorable, shifts in currency exchange rates could impact earnings and dividends.
Conclusion
Civmec is well-positioned to capitalize on favorable market conditions, including a recovery in the resources sector and a strengthening Australian dollar. With a robust order book, improved earnings, and strategic focus on high-growth sectors, the company’s outlook remains positive. UOB Kay Hian’s recommendation to maintain a BUY rating reflects confidence in Civmec’s continued growth trajectory and attractive valuation.
