DBS Group Research on Friday (Sep 2) raised its target price on construction and engineering company Civmec : P9D 0%to S$0.92 as it believes the company’s Sep 1 trading price of S$0.64 is a “steep discount” relative to its peers’ average, given its higher earnings growth and margins.

Analyst Paul Yong noted that the group’s FY2022 net profit of A$50.8 million (S$48.4 million) was above consensus estimates, on the back of record revenues of A$809.3 million. Highlighting the company’s robust orderbook of about A$1 billion, along with improving project margins and further expansion plans, Yong thinks Civmec’s relative discount is unwarranted.

The analyst also liked Civmec for its diversified revenue streams from both private and public sector capital expenditure and was further upbeat on the company’s upcoming expansion plan in Gladstone, Queensland.

An upside for Civmec could come from the increasing number of lithium and hydrogen energy projects in Australia, which Yong believes would benefit the company given its established relationships with leading industry players like Rio Tinto and Chevron. He noted that the company had recently won a major contract to build a refinery related to electric vehicle batteries, due in 2024.

DBS maintained its “buy” recommendation on Civmec as it expects higher margins for the company, albeit with a “more modest outlook on revenue growth”.

However, a sharper-than-expected contraction in private capital expenditure could present a key risk for the group. Near-term orderbook growth could also be stunted by labour supply in Australia, which Yong noted has yet to return to pre-Covid-19 levels.

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Shares of Civmec traded flat at S$0.64 as at 3.22 pm on Friday.