FY22 results: Civmec delivers record results for FY22, dividend surprise
(+) FY22 revenue and net profit at record highs. FY22 revenue reached A$809.3m, up 20% y-o-y, in line with our estimates. FY22 net profit is at A$50.8m, up 46% y-o-y, which beat our estimates by 9%. FY22 net profit margin of 6.3% (FY21: 5.2%) was above our estimate and management’s guidance of 6.0%. This was attributed to effective cost controls on administrative expenses.
(+) Healthy project and gross margins maintained, despite rising costs. FY22 gross margins were at stable levels at 11.2% (FY21: 11.1%) despite rising costs (e.g., raw materials, fuel, labour, and more), suggesting that cost pressures were well managed over the year. Additionally, 2H22 gross margin inched up to 11.6% (1H22: 10.8%, 2H21: 11.0%), which is at a four-year high. Management believes that raw material costs have reached its peak, which should bode well for future project/gross margins.
(+) Dividend surprise of AUD 3 cents, in lieu of the strong results, which translates to a dividend yield of 4.5%. The AUD 3 cents (FY21: AUD 2 cents) dividend declared is above our expectations, and above management’s guidance of AUD 2 cents. This translates to a dividend payout ratio of 30% (FY21: 29%).
(+) Positive operational updates. The land purchase of Civmec’s recently announced facility in Port Hedland has been settled and the company will be seeking to develop the facility over the next 12 months. Separately, Civmec has secured IRATA certification, which enables the group to provide rope access services to its clients, thereby expanding its service offerings.
(+) Expansion plans a positive signal. Civmec intends to acquire a 28,510 square metre land holding in Gladstone, Queensland to establish a permanent facility. This facility will replace the leased facility that Civmec currently occupies and will allow the group to expand its service offerings in the region, more specifically into maintenance-related projects. Notable projects and customers in the vicinity include alumina refineries, coal export terminals, cement players, and more. Thus far, Civmec has been involved in projects in the region, albeit at a smaller scale. This acquisition will solidify the group’s presence and leadership in the region and enable Civmec to play a larger role in projects in the region going forward. Capex earmarked for this acquisition is guided to be A$10m.
(+) Healthy balance sheet. Civmec’s FY22 NAV per share has grown to AUD 74 cents (c.71 Scts), up 28% y-o-y from AUD 58 cents in FY21. Separately, Civmec is also able to maintain healthy balance sheet with a FY22 debt-to-equity ratio of 0.09x (FY21: 0.04x).
(+) Healthy customer capex amid a growing addressable market. Customer capex (including maintenance opportunities) from the mining, energy, infrastructure, marine, and defence sectors is estimated to grow by 9% y-o-y by FY24F, with >A$110bn in customer capex estimated per year, suggesting there’s room for an upside to orderbook growth.
(-) Labour availability as a cap for growth. Although there is a possible upside for orderbook growth, management has guided that they are maintaining a cautious approach in bidding for orderbooks due to concerns over labour shortages. Whilst labour market conditions in Australia have improved since the COVID-19 pandemic, labour supply has not returned to pre-COVID levels yet, which, in our view, could cap near-term orderbook growth.
(+) Modest revenue growth, with improved gross margins and steady net margins. We forecast modest revenue growth of 5%/9% for FY23/24F, with a modest growth of 9% in the orderbook for FY23F. We also assume project/gross margins would improve to 11.5% (FY22: 11.2%). Although, we assume marginal increases in operating expenses to 2.7% (FY22: 2.3%) as we consider higher labour and R&D costs. Overall, we assume net margins will remain stable at 6.3% for FY23/24F (FY22: 6.3%), which is in the upper limit of management’s latest guidance of 5.5%-6.5% going forward.
Going forward, we anticipate management to continue paying investors a steady DPS of AUD 3 cents, which translates to a dividend payout ratio of 28%/26% for FY23/24F.
Maintain BUY with revised TP of S$0.92, based on our FY23F EPS and forward PE of 9.0x (unchanged). Civmec is currently trading below its book value (FY22 NAV per share of AUD 74 cents i.e., 71 Scts) and below its peers’ average of 11.5x. In our view, higher-than-expected orderbook growth as labour markets in Australia improve, can catalyse an upwards rerating of Civmec’s share price.