Civmec - Maybank Research 2022-09-01: Steady Delivery; 2H22 Profit Exceeds Expectations


Civmec - Steady Delivery; 2H22 Profit Exceeds Expectations

  • Civmec (SGX:P9D)’s 2H22 net profit jumped 42.8 y-o-y to AUD28.2m, beating our and street expectations. Excluding the write-back of AUD1.3m for the previous impairment/revaluation losses, FY22 core earnings of AUD49.5m came in at 105% of MIBG/consensus’ full-year estimates.
  • Civmec group declared a final dividend of AUD0.02, bringing total payout to AUD0.03 (+50% y-o-y).

Rising operating leverage with higher margins

  • Civmec's turnover for 2H22 rose 14% y-o-y to AUD419.9m, mainly attributed to increased activity levels and the timing of revenue recognition of projects. Gross profit margin also improved by 0.6ppt to 11.6% on higher contributions from its marine & defence sector, as well as economies of scale.
  • Going forward, we think margins should continue to expand as prices of raw materials have begun to stabilize or even decreased slightly. This, coupled with tight control on operating expenses and lower finance costs following its refinancing in Nov 2021, should flow directly through to Civmec's bottom line.

Strong order book of > AUD1b provides visibility

  • Underpinned by robust contract wins across all sectors, we note that Civmec's order book remains on an upward trajectory (+3.3% y-o-y to AUD1.04b), of which the majority will be recognized in the next 12 months, with a portion of the secured order book extending as far as 2029.
  • Given the buoyant tendering activity and taking into account its labour availability, Civmec's management is now more selective and focused on growing the proportion of recurring income earned from long-term maintenance contracts.

Continues to invest for future growth

  • As workload in the Gladstone region of Queensland ramps up, Civmec recently acquired a 28,510 m2 land holding to establish a permanent facility. This will replace the leased facility it currently occupies and allow the group to expand its service offerings in the region. The plant will require capex of about AUD10m and be developed over the next 18 months.
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  • Meanwhile, Civmec has bolstered its balance sheet with the upward revaluation of its freehold land and buildings by AUD37.1m, thus increasing its NAV per share to almost AUD0.74 (+26.8% y-o-y).
  • We raise our FY23-25E EPS forecast for Civmec by 1-2% on the back of a stronger net margin assumption. That said, we keep our 12-month target price for Civmec unchanged (still based on 10x FY23E P/E) given the depreciating AUD against S$.

Eric Ong Maybank Research | https://www.maybank-ke.com.sg/ 2022-09-01
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