KGI Securities analyst Megan Choo has reiterated her “outperform” rating for Civmec with a higher target price of 90 cents, up from 86 cents previously, in a Sept 8 research note.
The revised target price follows Civmec’s “outstanding” FY2021 ended June results, where its full-year earnings of A$34.6 million ($34.4 million) rose 97% y-o-y and beat Choo’s estimates of A$33.5 million. She notes that the company’s main revenue driver continues to be the metal and minerals sector which increased 66% y-o-y, making up 83% of total revenue for FY2021.
See: Civmec's earnings more than double to $19.4 mil in 2H21
Choo remains optimistic on Civmec’s outlook, noting that the outlook for the mining industry remains strong on the back of pent-up demand emerging post-pandemic. “As vaccination campaigns ramp up, rebounding economic activity is driving demand for many commodities, buoyed by government stimulus efforts around the world,” she notes.
While iron ore prices have come down from their all-time high in June of around US$1,387 ($1,864) per tonne as China policymakers attempt to cut steel production to curb carbon emissions, Choo notes that iron ore imports hit new highs in August, suggesting a continued reliance on the commodity.
In addition, Choo highlights that capital expenditure by Civmec’s largest customers such as Rio Tinto and BHD remains “resilient”. “Civmec’s order book is currently at A$1.15 billion as of end-FY2021, and is expected to grow given the strong repeat business from long-term clients,” she remarks.
She is also positive on Civmec’s acquisition of five hectares of land in Port Hedland to establish a permanent facility for construction and maintenance activities in Pilbara. “As the nature of mining sites require repair and maintenance approximately every six weeks, a firm foothold in the area would accelerate efficiency and minimise crossborder travelling for employees,” she explains.
Given the tailwinds, Choo has raised her target price for Civmec to 90 cents, based on 12 times P/E to its FY2022 earnings per share of 74 cents.
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She notes that risks to her rating include further exacerbation of Australian-China tensions which may result in trade sanctions on a wider array of Australian exports and rising labour costs in Australia due to labour shortage.
As at 1.21pm, shares in Civmec are down 0.5 cents or 0.74% lower at 67.5 cents.
