Civmec - UOB Kay Hian 2022-09-09: FY22 Results Above Expectations; Positive Outlook For Future Growth


Civmec - FY22 Results Above Expectations; Positive Outlook For Future Growth

  • Civmec’s FY22 net profit of A$51m (+47% y-o-y) beat our expectations by 13% due to robust revenue growth across most sectors and net margin expansion.
  • Dividend also exceeded our expectations by 20%, with a full-year dividend of AUD0.03 (+50% y-o-y), representing a dividend yield of 4.7%. See Civmec's dividend history.
  • Civmec remains positive on its future outlook given the strong tendering opportunities across all the sectors in which it operates. Maintain BUY recommendation on Civmec with a 9% higher target price.

Civmec's FY22 results above expectations from revenue growth across most sectors and margins expansion.

  • Civmec (SGX:P9D)’s FY22 net profit of A$51m (+47% y-o-y) was above our expectations by 13%. Revenue grew 20% y-o-y, with the infrastructure & defence segment growing 95% y-o-y and the resources segment growing 13% y-o-y. On the other hand, the energy segment, which forms around 4% of total revenue, fell 21% y-o-y. EBITDA margin expanded by 0.8ppt while net margin grew 1.2ppt, mainly due to better operating leverage and more favourable contract terms as most of Civmec’s customers in the resources industry are making good profit.
  • Strong tender activity indicates more contract wins. Tendering activity remains strong across all the sectors that Civmec operates in and it is focused on securing projects that will grow its workforce at a sustainable rate. Civmec remains positive about the pipeline and the opportunities to continually replenish its orderbook. Civmec is also increasingly focused on growing the proportion of revenue earned on long-term contracts.
  • Progressing well on construction work of lithium plants in the green energy segment. Following the successful completion of the contract with Albemarle for construction work at their Kemerton lithium plant, work has now commenced on Civmec’s contract to construct the Kwinana lithium refinery for Covalent. This represents the fourth lithium plant that Civmec has been involved in.
  • Two new facilities under development to support growth. The previously announced facility in Port Hedland has achieved a significant milestone, with the recent settlement of the land purchase and gaining of development approval. The facility will be developed over the next 12 months. In addition, Civmec has acquired a 28,510 sqm piece of land in the region to establish a permanent facility will replace the leased facility Civmec currently occupies and allow it to expand its service offerings in the region.

Positive industry outlook for the resources and energy segment.

  • Energy activity is expected to grow substantially over the next few years, peaking in FY24. Activity will be supported by major projects such as Gorgon Stage 2 (Western Australia), Pluto Stage 2, Scarborough Gas Field, the Surat Gas Project and the Barossa gas field. The hydrogen industry is gaining traction in Australia, and Civmec expects more projects to be announced over the forecast horizon. These include the Haber Project, Woodside’s H2 Perth in Kwinana and Port Pirie Green Hydrogen Project (Southern Australia).
  • Well-positioned to tap on emerging opportunities in the clean and new energy segments. With an increasing focus on emissions reductions worldwide, Australia is beginning to see increased activity with announcements for development of plants associated with supply of battery minerals, rare earths, hydrogen and ammonia plants. Australia’s CSIRO (The Commonwealth Scientific and Industrial Research Organisation) has reported that in Australia and New Zealand, there are 60 hydrogen projects in various stages of development. The skills and experience 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 FY23/24 earnings forecasts for Civmec by 16%/12%, after raising our revenue estimates by 4%/4% and gross margin estimate by around 0.2ppt to 11.5%/11.7% to reflect more contract wins and better margins that Civmec should enjoy given the more favourable commodity prices which will benefit the majority of its customers.
  • Maintain BUY recommendation on Civmec with a 9% higher target price of S$1.18, pegged to 12x FY23F P/E (1 standard deviation below 5-year mean). We think Civmec's current valuation of 6x FY23F P/E is attractive, given its strong growth profile of 10% 3-year EPS CAGR for FY22-25 and huge orderbook, especially in the defence sector which has a long tenure and high barriers to entry. Civmec’s peers are trading at an average of 15x FY22F P/E.
  • See
  • Catalysts to Civmec's Share Price:
    • 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/ 2022-09-09
SGX Stock Analyst Report BUY MAINTAIN BUY 1.18 UP 1.080