Brokers’ take: Maybank initiates Civmec with ‘buy’ on strong growth outlook, attractive valuation

CONSTRUCTION and engineering group Civmec can likely ride on its strong orderbook as well as rising investments in the resources and energy sectors to post a positive growth outlook, Maybank said.

In a report on Friday (May 6), analyst Eric Ong initiated coverage on Civmec with a “buy” call and target price of S$1, noting that the counter trades at an “undemanding” 10 times the brokerage’s estimates for FY2023 earnings, which represents a 15-per cent discount to Civmec’s peers listed in Australia.

The counter is also attractive given its positive earnings profile and the enhanced clarity of its naval shipbuilding segment, the analyst added.

Shares of Australia-based Civmec were trading at S$0.665 as at the midday break on Monday, up S$0.01 or 1.5 per cent. The company is dual-listed on the Singapore Exchange and the Australian Securities Exchange.

Ong expects Civmec’s large orderbook of A$1.2 billion (S$1.1 billion) will support the group’s earnings growth and provide a decent prospective yield of 4 to 5 per cent going forward.

The company also can likely grow its recurring income stream, as its existing clients regularly outsource their maintenance services to it.

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Civmec in February reported net profit of A$22.6 million for its first half ended Dec 31, 2021, up 50.1 per cent on year, with sales revenue up 27.4 per cent on year to A$389.4 million.

For Civmec’s defence segment, Ong expects it will benefit from Australia’s rising defence spending, as Civmec is 1 of only 2 approved players to build the next-generation offshore patrol vessels for the Royal Australian Navy, giving it a strong competitive edge that could further support margins.

Civmec will likely recognise higher revenues from its defence segment with the scheduled delivery of the offshore patrol vessels, the analyst added, nothing that the company also has plans to continue to secure more contracts and to start exporting ships afterwards.

Meanwhile, Civmec can also gain from the investment boom in the Australia infrastructure sector, given that it is a tier-1 contractor with the required financial accreditation for major public infrastructure projects, and a proven track record.

Additionally, noting that Australia’s resource and energy export earnings are forecasted to hit a record A$425 billion in 2022, Ong expects Civmec can replenish its orderbook and post good revenue visibility.

This comes as the group is already seeing several large iron ore projects in the pipeline, as well as further development in the battery minerals space, the analyst noted.