Date: October 30, 2024
Broker: Maybank Research Pte Ltd

Company Overview

Civmec Ltd (CVL SP) is an integrated, multi-disciplinary construction and engineering services provider operating in Australia. The company primarily serves the Resources, Energy, Infrastructure, Marine, and Defence sectors.

Financial Performance

• 1Q25 Results: Civmec reported a net profit after tax (NPAT) of AUD 15.2 million for the first quarter of FY25, which is in line with expectations, accounting for 25% of Maybank IBG’s full-year forecast.
• Revenue Growth: The turnover for 1QFY25 grew by 7.2% year-over-year to AUD 262.7 million, driven by several agreements and contract extensions, along with increased maintenance works.
• EBITDA Margin: The EBITDA margin narrowed slightly to 11.1%, down 0.7 percentage points, primarily due to changes in business mix and the timing of project recognitions.

Strategic Developments

• Redomicile to Australia: Civmec successfully completed the redomicile of its parent company to Australia as of September 4, 2024. This strategic move aims to align better with local manufacturing requirements and improve the availability of jobs within the group.
• New Defence Contracts: On October 15, 2024, Civmec entered a non-binding Heads of Agreement with NVL B.V. & Co. KG for the transfer of ownership of Luerssen Australia, which includes the construction of six Arafura Class Offshore Patrol vessels for the Royal Australian Navy under the existing SEA1180 contract.

Market Position

• Order Book Status: As of the end of September 2024, Civmec’s order book declined by 6.2% year-over-year to AUD 800 million. However, management indicated a buoyant tendering activity across all sectors, providing opportunities to replenish the order book.
• Share Price and Target Price: The current share price is SGD 1.12, with a target price raised to SGD 1.20, reflecting a 7% upside based on a higher Price-to-Earnings Ratio (PER) of 11.5 times, which is a 20% discount to the sector average.

Risk Factors

• Order Book Volatility: The cyclical nature of the industry poses a risk regarding the attraction and retention of skilled employees.
• Execution Risks: Potential project delays or terminations due to unexpected margin pressures from rising raw material and labor costs.

Conclusion

Civmec Ltd is strategically positioned within the Australian market, particularly in the Defence sector, with strong growth indicators and opportunities for future revenue growth, despite facing certain industry-related risks.