Civmec Limited - UOB Kay Hian 2021-10-19: Leading Contractor With Huge Orderbook In Defence & Commodity Sectors

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CIVMEC LIMITED (SGX:P9D)

Civmec Limited - Leading Contractor With Huge Orderbook In Defence And Commodity Sectors

• Civmec is on track for record earnings in FY22 (+18% y-o-y) as it delivers a A$1b orderbook for clients in the defence and commodity sectors. We believe the market has overlooked the huge potential of its defence business, which just started in FY21 and has high barriers to entry. Its resources and energy segments are set to enjoy stronger construction demand as clients seek to increase capacity amid high commodity prices.
• We initiate coverage on Civmec with BUY rating.

Civmec - Company Background

• Civmec (SGX:P9D) was established in 2009 and has been listed on the Singapore Exchange (SGX) since 2012. Subsequently, the group achieved dual listing on Australia Securities Exchange (ASX) and SGX in Jun 18. The group is an integrated, multi-disciplinary construction and engineering service provider in Australia.
• Civmec mainly caters to the resources, energy, infrastructure, and marine and defence sectors including blue-chip names (eg, BHP, Fortescue and Roy Hill) and provides manufacturing, construction and maintenance services.
• Civmec operates in three key sectors:
  1. metals and minerals,
  2. oil and gas, and
  3. infrastructure and defence.
• Refer to appendix3 in report attached below for more details.

Record earnings and growth for FY22, backed by huge orderbook of A$1b.

• We expect Civmec to deliver minerals should continue to drive new construction demand, while the ramp-up of the defence business in FY21 should accelerate Civmec’s future earnings growth.

Serving Australia’s vital and booming sectors: defence, resources and energy.

• Started in 2009, Civmec is one of Australia’s leading construction and engineering services provider to three key sectors: resources, energy and defence. Notable clients of Civmec include Chevron, Rio Tinto, Alcoa Australia, BHP, Thyssenkrupp and the Royal Australian Navy. Key projects completed include:
  1. maintenance support of oil production facilities,
  2. construction of iron bridges for mining operations,
  3. construction of a lithium plant and
  4. construction of offshore patrol vessels (OPVs).

Massive potential in new defence business underappreciated.

• In Apr 18, the Royal Australian Navy awarded a huge contract to Civmec and Lurssen Shipyard to construct 12 OPVs by Australian Submarine Corp. The defence business should also boost net margin.

Positive industry outlook as Australia’s resource and energy exports expected to reach record levels.

• As the world’s economy rebounds from the impact of player being Australian Submarine Corp. This should translate to attractive margins.
• We note that Civmec’s net margin started improving in FY21, where its FY21 net margin of 5.2% was notably higher than its FY20 net margin of 4.5%.

Initiate coverage on Civmec with BUY

• Initiate coverage with BUY and trading at an average of 22x FY21F and 15x FY22F P/E. Continue to read the 19-page report attached below for complete analysis on Civmec.
• See
  • Civmec's Share Price,
  • Civmec's Target Price,
  • Civmec's Analyst Reports,
  • Civmec's Dividend History,
  • Civmec's Announcements,
  • Civmec's Latest News.
• Share price catalysts include
  • Earnings surprise due to capex for mining and O&G sectors,
  • delay in and premature termination of projects.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-10-19

SGX Stock Analyst Report BUY INITIATE BUY 0.98 SAME 0.98