Civmec - UOB Kay Hian 2022-03-04: Laggard To Commodity & Defence Peers Despite Having Good Sector Exposure

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CIVMEC LIMITED (SGX:P9D)

Civmec - Laggard To Commodity & Defence Peers Despite Having Good Sector Exposure

• Year-to-date Civmec's share price performance of -1% is laggard vs its commodities peers (Rex International (SGX:5WH) +43%, RH PetroGas (SGX:T13) +99%, Sembcorp Marine (SGX:S51) +15%, Geo Energy (SGX:RE4) +54%).
• To recap, Civmec (SGX:P9D) is one of Australia’s leading engineering players, serving key sectors including defence and resources. Its clients include Chevron, Rio Tinto, Alcoa, BHP and Thyssenkrupp. Civmec should see margin expansion as its clients will benefit from the high commodity prices.

Civmec's share price is laggard vs its commodities peers in Singapore.

• Due to the uncertainties in the commodity supply triggered by the Russia–Ukraine unrest, several commodity prices has spiked to a multi-year high, especially the Brent Oil price which has increased by around 50% year-to-date to US$115/barrel. As a result, most of the commodity-related stocks have enjoyed a positive share price movement. However, year-to-date Civmec's share price performance of -1% is a laggard vs its commodities peers
  • Rex International Share Price +43%,
  • RH PetroGas Share Price +99%,
  • Sembcorp Marine Share Price +15%,
  • Geo Energy Share Price +54%,
  • Golden Energy & Resources Share Price +47%,
  • CNMC Goldmine Share Price +5%.
• Expect more contract wins and margin expansion as Civmec’s clients should benefit from high commodity prices. Civmec is one of Australia’s leading engineering players, serving key sectors including resources and energy (89% of FY21 revenue) as well as defence and infrastructure (11% of FY21 revenue). Its clients include Chevron, Rio Tinto, Alcoa, BHP, Thyssenkrupp and the Royal Australian Navy.
• In its latest outlook statement, Civmec continues to see a strong pipeline of tendering opportunities in all the sectors it operates (resources, energy and defence). Civmec continues to have early contractor involvement with many existing and new clients across various commodities for future opportunities and expects to continue to replenish its orderbook throughout FY22.

Geopolitical tension could accelerate defence spending by the Australian Government.

• Given the increase in geopolitical tension, especially the recent Russia– Ukraine war, the Australian government FY21, Civmec delivered a strong earnings growth of 94% y-o-y. Civmec’s 1HFY22 earnings grew 10%. Civmec sees a strong pipeline of new projects in the sectors it operates in and new opportunities in the green energy space.

Positive industry outlook for the resources and energy segment with prices making a sharp recovery.

• Energy Civmec has gained since inception puts it in a strong position to secure contracts for the manufacture of components and construction of these plants in the future.

Civmec - Earnings forecast revision & recommendation

• We raise our FY22/23/24 earnings forecasts for Civmec by 10/8/8%, after Civmec’s peers are trading at an average of 22x FY21F and 15x FY22F P/E.
• See
  • Civmec's Share Price,
  • Civmec's Target Price,
  • Civmec's Analyst Reports,
  • Civmec's Dividend History,
  • Civmec's Announcements,
  • Civmec's Latest News.
• Catalysts:
  • Earnings surprise due to higher-than-expected contract wins and margin.
  • Better-than-expected dividend.
  • Takeover offer by strategic shareholder given the high entry barrier of defence business.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-03-04

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