Civmec Limited is delivering the goods, writes Maybank Securities analyst Eric Ong, as the construction and engineering services provider beat estimates in 1HFY2023 ended December 2022.
1HFY2023 patmi rose 25% y-o-y to A$28.2 million ($25.96 million), beating consensus expectations. “To our positive surprise, the group doubled its interim dividend to 2 Australian cents on the back of strong cash flow.”
Established in 2009, Civmec is an integrated, multidisciplinary construction and engineering services provider to the energy, resources, infrastructure and marine & defence sectors.
In a Feb 9 note, Ong maintains “buy” on Civmec with a higher target price of $1 from 94 cents previously. The new target price represents a 53% upside against its last traded price of 66 cents.
Civmec continued to grow its order book to A$1.18 billion as at end-1HFY2023, compared to A$935 million in 1QFY2023 ended September.
Tendering activity across all sectors remained robust, notes Ong. “This should help to secure the majority of the turnover planned for the next 12 months, with a portion of the secured order book extending as far as 2029.”
Going forward, the group will focus on securing new contracts that generate good returns by optimising its workforce at a gradual pace, Ong adds. “Coupled with China’s recent reopening, visibility of upcoming projects for existing clients is good.”
The highly anticipated Australia Defence Strategic Review (DSR), which is likely to be released in March, is expected to open further shipbuilding and sustainment opportunities, says Ong. “We understand Civmec recently appointed Mark Clay as General Manager, Defence to support the growing tempo of defence activities, especially in the Henderson maritime precinct.”
Ong raises his FY2023-2025 earnings per share (EPS) forecasts by 5%-10%, largely due to better-than-expected margins. “Key re-rating catalysts include higher-than-expected order wins and continued margin expansion.”
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Meanwhile, DBS Group Research analysts Elizabelle Pang and Paul Yong believe Civmec is “well-positioned in both private and public sectors”.
In a Feb 10 note, Pang and Yong maintain “buy” on Civmec with a higher target price of 95 cents from 92 cents previously.
“Customer capex from these sectors is estimated to expand at a 9% CAGR up to FY2024. Australia’s government aims to deliver over A$120 billion in infrastructure investments over 10 years and has pledged to invest A$183 billion by 2050 in naval shipbuilding, with Civmec as one of the few approved players.”
Pang and Yong like Civmec’s diversified revenue streams from both private and public sectors. “Public sector spending generally kicks in during periods of economic downturns and/or when private capex is low, hence providing diversification to the group’s revenue streams.”
In addition, Civmec’s 1HFY2023 operating cashflows turned positive, the first since June 2016. Cashflows from operations for 1HFY2023 came in at A$84 million, resulting in a cash balance of $62.8 million and borrowings (excluding finance leases) of A$50 million, note Pang and Yong.
1HFY2023 marks the first period since June 2016 that the group has been in a positive net cash position, following three years of significant capex investments in new facilities.
As at 1.57pm, shares in Civmec are trading flat at 66 cents.
