Comprehensive Analysis of Listed Companies in UOB Kay Hian’s Regional Morning Notes

Broker: UOB Kay Hian

Date: February 17, 2025

Civmec: Strengths, Challenges, and Recommendations

Recommendation: Downgraded to HOLD

Current Share Price: S\$0.895

Target Price: S\$0.980 (previously S\$1.400)

Upside: +9.5%

Key Highlights of Civmec’s Performance

• 1HFY25 Results: Civmec reported earnings of A\$27 million, representing a 17% year-on-year decline. This missed the analyst’s expectations, as it accounted for only 40% of the full-year estimate. The miss was primarily driven by weaker-than-expected net margins due to start-up costs for its equipment manufacturing business and reduced operating leverage.
• Revenue Growth: Revenue for 1HFY25 came in at A\$503 million, a modest 2.2% increase year-on-year, aligning with forecasts.
• Margins: The EBITDA margin fell from 12.1% in 1HFY24 to 10.5% in 1HFY25, while net margins also contracted from 6.5% to 5.3%, reflecting higher costs and softer revenue.

Dividend Confidence Despite Challenges

Despite the earnings shortfall, Civmec maintained its interim dividend at 2.5 Australian cents, translating to a payout ratio of 48%. The company remains optimistic about delivering a full-year dividend of 6.0 Australian cents for FY25, barring unforeseen circumstances.

Outlook and Forward Indicators

• Tendering Activities: Civmec remains active in tendering, with prospective opportunities valued at nearly A\$12 billion. Collaborative projects span expansion, sustainment, maintenance, and feasibility studies.
• Election-Driven Delays: The upcoming Australian election in May 2025 is causing delays in project approvals and awards, potentially impacting activity levels in 2HFY25 and extending into 1HFY26.

Order Book: The company’s order book stood at A\$633 million at the end of 1HFY25, down from A\$853 million in FY24, but it aims to replenish this to A\$1 billion over the next 12 months.

Key Financial Metrics

• Net Turnover: A\$840 million forecast for FY25, an 18.7% decline year-on-year.
• Net Profit: Expected to drop 33.3% in FY25 to A\$43 million, with gradual recovery projected for FY26 and FY27 (A\$49 million and A\$52 million, respectively).
• Valuation: Downgraded target price of S\$0.98, pegged at 12x FY26F PE, reflecting a 0.5 standard deviation below its long-term historical mean.

Notable Achievements

• OEM Machine Supplier: Civmec secured a A\$90-100 million project to design and construct a major shiploader, enhancing its reputation in the balanced machines sector.
• Infrastructure Excellence: Civmec completed the Boorloo Bridge project, earning an upgrade to a B4 accreditation and receiving the Australian Steel Institute National Steel Excellence Award 2024.
• Luerssen Ownership Transfer: Due diligence is underway for Civmec to acquire Luerssen Australia’s assets, staff, and licences, ensuring continuity in the Royal Australian Navy’s SEA 1180 contract. The transaction is targeted for completion by July 1, 2025.

Peer Comparisons and Industry Insights

Australian Peers

• Monadelphous (MND AU): Trading at a PE of 20.6x for FY25, it has a market cap of US\$975 million. It boasts a dividend yield of 4.3% and a net margin of 3.4%.
• NRW Holdings (NWH AU): Valued at a PE of 11.6x for FY25, with a market cap of US\$988 million, a dividend yield of 5.0%, and a net margin of 4.3%.
• Imdex Ltd (IMD AU): Exhibiting higher valuations at 29.6x PE for FY25, it has a market cap of US\$940 million and a net margin of 12.4%.
• Austal (ASB AU): Trades at a lofty PE of 29.8x for FY25, with a market cap of US\$859 million, a dividend yield of 0.3%, and a net margin of 2.6%.

Asia Peers

• ST Engineering (STE SP): A heavyweight with a market cap of US\$11.5 billion, trading at a PE of 19.2x for FY25 with a net margin of 6.7%.
• Sany Heavy Equipment (631 HK): A lower PE of 6.1x for FY25 and a market cap of US\$2 billion, with a net margin of 9.3%.

Singapore Peers

• CSE Global (CSE SP): Trades at a PE of 9.6x for FY25, with a dividend yield of 6.1% and a net margin of 3.6%.
• Marco Polo Marine (MPM SP): Features a PE of 7.7x for FY25, with a dividend yield of 1.9% and a net margin of 19.9%.

Conclusion

While Civmec faces near-term challenges due to election-driven delays and softer margins, its strong tendering pipeline, robust dividend track record, and strategic initiatives like the Luerssen ownership transfer position it well for medium-term growth. The downgrade to HOLD reflects cautious optimism, with a target price of S\$0.98. Investors should monitor key catalysts such as unexpected contract wins, margin improvements, and strategic acquisitions.