Civmec – Robust Earnings Growth Of 20%

Excerpts from UOBKayHian report

Civmec (SGX: P9D)

• Civmec’s 3QFY23 earnings of A$15m (+20% yoy) is in line. 9MFY23 formed 77% of our full-year estimate. 3QFY23 net margin grew 1.5ppt yoy.
• The strong improvement in net margin was driven by delivery of higher-return projects. Civmec continues to see strong tendering activity across all sectors.
• Yield is attractive at 6% for FY24.

Maintain BUY with a 12% higher target price of S$1.23. Civmec is a laggard to Singapore’s oil and gas related stocks with its ytd share price performance of +22% (vs peers’ +25-174%).

Results in line with expectation; earnings up 20% yoy with strong net margin expansion

Civmec’s 3QFY23 earnings of A$15m (+20% yoy) is in line, with 9MFY23 accounting for 77% of our full-year estimate. 3QFY23 revenue fell 3% yoy to A$188m, but net margin grew 1.5ppt yoy to 7.8%.0 Orderbook is maintained at around A$1.2b. The strong improvement in net margin was driven by delivery of higher-return projects, better cost management, optimisation of productivity, and working with clients proactively along the project life cycle.

Civmec outlook remains robust

Civmec continues to see strong tendering activity across all sectors. It continues to focus on securing good return projects, optimise workforce utilisation and maintain a strong, high quality orderbook. Also, Civmec is increasingly regarded by its clients as the go-to contractor for reliable delivery and time-critical services.

Laggard to oil & gas (O&G) related peers despite having superior financial metrics

Civmec’s ytd share price performance of +22% is lagging its Singapore-listed oil & gas related peers (+25-174%) despite Civmec having superior dividend yields and more attractive PE multiple.

Civmec valuation/Recommendation

Maintain BUY with a 12% higher target price of S$1.23, pegged to 11x FY24F PE (based on 1SD below five-year mean). We have rolled over our valuation base year to FY24 from FY23. We think Civmec’s current valuation of 7x FY23F PE is attractive, given its strong growth profile of 10% three-year EPS CAGR for FY22-25 and huge orderbook. Civmec’s peers are trading at an average of 12x FY22F PE.

You can find the full report here and the company website here.