Engineering firm Civmec P9D 's application to shift its domicile from Singapore to Australia, where it operates, will help increase opportunities to win new contracts with stringent "local content" requirements.
By doing so, Civmec can also tap capital willing to help fund local manufacturing activities, according to UOB Kay Hian analysts John Cheong and Heidi Mo in their June 21 note.
Even as its order book reaches A$821 million, the analysts note that Civmec is still expanding both its service offerings and client base.
Meanwhile, they've kept their "buy" call and $1.23 target price on this stock, which is pegged to 11x FY2024 earnings, which is at 0.5 sd below its long-term historical mean.
"We think its current valuation of 7x FY2024 earnings is attractive, given its strong order book. The stock is trading at a deep 55% discount to its regional peers that are trading at an average of 16x FY2024 earnings," state Cheong and Mo.
According to the analysts, tendering activities across Civmec's operations are at historically high levels, with current priced opportunities approaching A$10 billion.
Civmec, the analysts say, is working closely with a range of clients on approved expansion, sustaining and maintenance opportunities as well as on a budgetary level for projects under feasibility studies.
As a result of these engagements, Civmec sees significant opportunities for both order book replenishment and growth in the medium and longer term.
The company has a strong pipeline of tendering opportunities in all the sectors it operates in, ranging from resources, energy and infrastructure, marine and defence.
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Civmec is winning over a bigger share of maintenance-related contracts, with clients such as old major Chevron. It provides construction services too to mining giant Rio Tinto, according to Cheong and Mo.
Separately, the Australian government recently halved the number of offshore patrol vessels it had wanted to order from 12 to 6. Civmec was earlier seen to tap on this series of contracts.
Nonetheless, Civmec has already completed its scope of work for the 6 vessels and has shifted its resources towards other contracts. "This is therefore not expected to impact FY2024's financial performance, demonstrating Civmec's effective diversification of contracts across sectors," state Cheong and Mo.
Even so, given the Australian government's stance to beef up its defence spending over the longer term, Civmec remains a "strong contender" for future contracts given its long-standing ties with the Department of Defence.
Civmec shares closed at 82 cents on June 21, unchanged for the day and up 1.87% year to date.
