Brokers’ take: DBS starts coverage on Civmec with ‘buy’, S$0.88 target

AUSTRALIA’S strong economic outlook as well as opportunities in new economy sectors present significant potential upside to Civmec’s share price going forward, according to DBS Group Research.

The research house has initiated coverage on the dual-listed stock at “buy” with a S$0.88 price target, which represents a 36 per cent upside to the last closing price of S$0.65 as at May 20 on the Singapore Exchange (SGX).

In a report on Monday (May 23), DBS noted that the construction and engineering services provider was trading at a discount relative to its peers – which is unwarranted, in the research house’s view, given the company’s comparatively higher earnings growth and margins.

“We note that some of Civmec’s peers have higher dividend yields, which could explain why the group is not trading at higher forward price-to-earnings ratios despite its stronger fundamentals,” said its analysts.

In their view, the Australia-based company’s robust orderbook of about A$1.07 billion (S$1.04 billion) as at March 2022 will drive steady earnings for FY2022 and FY2023, and beyond – and is set to grow even further in tandem with rising industry capital expenditure, or capex.

Through its diversification into sectors such as infrastructure and defence, the group’s exposure to government public spending will also ensure orderbook growth even during economic downturns when public spending typically kicks in, observed the analysts.  

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“We believe Civmec’s strategic proximity, fabrication expertise and vertically integrated capabilities position it as a potential beneficiary of its customers’ growing capex,” they added. 

Its maintenance and capital works segment is further expected to contribute greater recurring income to the group’s earnings in the medium term, as its management targets to grow the segment’s revenue contribution from 25 per cent currently, to 40 per cent in the next couple of years.

Highlighting Australia as home to an increasing number of lithium and hydrogen energy projects, DBS also sees Civmec as a potential beneficiary of such new economy segments, which will serve as additional levers of growth for the company.

“Given Civmec’s established relationships with notable energy players, we believe the group is well positioned to tap into such opportunities.” 

As at 11.43 am on Monday, the counter was trading S$0.01 or 1.6 per cent higher at S$0.66 on the SGX mainboard.