Maybank Securities' Eric Ong has maintained his "buy" call and $1.05 on Civmec P9D after the Australia-based engineering reported 3FY2024 earnings that beat expectations slightly.
Given how the company is able to maintain strong operating profit and a net cash balance sheet, Ong in his May 10 note, sees Civmec shaping up to be an attractive dividend play.
On May 9, Civmec reported earnings of A$17.1 million for its 3QFY2024 ended March, up 16.9% y-o-y. This brings 9MFY2024 earnings to A$49 million, up 14.2% y-o-y.
Revenue in 3QFY2024 increased by a higher-than-expected 37.6% y-o-y to A$258.3 million, thanks to faster recognition from ongoing projects.
However, ebitda margins dipped by 2.4ppt to 12.2% no thanks to higher manpower costs.
A key growth driver for Civmec has been defence-related contracts, including that for six offshore patrol vessels. The initial expectation was for a fleet of 12 such vessels.
Ong notes that work has been completed and Civmec has since redeployed its some of its workforce to support other ongoing contracts while awaiting more clarity on the Australian government’s medium to longer-term shipbuilding requirements.
Ong points out that despite robust tendering activities across its key sectors, Civmec’s order book has declined to about A$821 million, versus A$1 billion last year.
As such, maintenance is seen to be Civmec's next growth engine.
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"It is now working closely with its clients on approved expansion projects, sustaining & maintenance opportunities as well as on a budgetary level for projects under feasibility studies," says Ong.
To this end, Civmec is ramping up the utilisation of its Port Hedland facility, which is near completion and where the company will focus on making sure of which is better utilised.
"Management therefore sees potential to further increase market share in maintenance and capital works in the precinct," says Ong.
Given Civmec’s strong ebitda and net cash balance sheet, Ong expects Civmec to raise its FY2024 dividend payout by 20% to 6 Australian cents, which translates into an attractive annualised yield of 6.9%.
For 1HFY2024, Civmec had already paid 2.5 Australian cents, up from 2 Australian cents back in 1HFY2023.
Ong is rolling forward his valuation base to FY2025, still pegged at 10x P/E, thereby deriving his target price of $1.05.
Civmec shares closed at 78 cents, up 0.65% for the day but down 2.5% year-to-date.
