Engineering firm Civmec P9D 0.00% ' 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.

 

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.

 

Australian engineering firm Civmec P9D -0.65% has reported earnings of A$17.1 million for its 3QFY2024, up 16.9% y-o-y, on the back of a 37.6% jump in revenue to A$258.3 million.

 

The company says it is well poised to capture potential construction, service and manufacturing contracts from multiple venues over the medium and longer term, from both commercial and public sector customers.

 

&ldquo I am proud to announce another strong quarter for our shareholders, with continued growth in both top-line revenue and bottom-line earnings and resilient profit margins," says chairman James Fitzgerald.

 

" An increase in the volume of maintenance-related awards reflects our increasing focus on maintenance works as a significant pillar of growth for the company," he adds.

 

The company says its order book is at A$821 million.

 

ENGINEERING and construction company posted a 12.8 per cent increase in net profit to A$31.9 million (S$27.9 million) for the first half ended Dec 31, 2023, on the back of higher revenue.

 

This is up from A$28.3 million in the previous corresponding period, the Australia-headquartered company said in a bourse filing on Wednesday (Feb 14).

 

Earnings per share came in at A$0.063 compared to A$0.056 in the same period a year earlier.

 

The board of Civmec has declared an interim dividend of A$0.025 per share, up from A$0.02 per share.

 

H1 revenue increased by 17.5 per cent to A$492.3 million from A$418.9 million, while net profit margin dropped 0.2 percentage point to 6.5 per cent over the same period.

 

The group also strengthened its balance sheet, increasing its net cash position to A$83.1 million from A$12.8 million, with its net assets growing 12.4 per cent to A$437.9 million. Net asset value per share rose to A$0.863 from A$0.771.

 

Civmec aims to build on growth through continued cost management, maintenance segment boom

Operational highlights from the six-month period included the completion of the Port Hedland maintenance facility, described as a &ldquo significant milestone&rdquo in helping the company increase its market share in maintenance services in the Pilbara.

 

It also completed a major civil and concrete works package for the Iron Bridge Magnetite Project, also in the Pilbara, and secured its first contract under a statewide road project in Western Australia.

 

The group also noted that its order book has been maintained above A$1 billion, which it says demonstrates its ability to perform multiple maintenance and capital upgrade contracts as well as resources construction packages.

 

It is also continuing the process of its proposed change of domicile from Singapore to Australia (first announced in October 2023), which will be achieved through a restructuring of the company by way of a scheme of arrangement.

 

It added that it is working with the relevant regulatory bodies in both countries to gain approval and finalise the scheme documents before submitting the proposal to a shareholder vote, though it did not specify a time frame.

CONSTRUCTION and engineering services provider Civmec : P9D +2.68% is on a roll.

 

For its first quarter ended September, the Australia-headquartered company reported a 7.3 per cent year-on-year increase in net profit of A$15.2 million (S$13.4 million).

 

Its top line grew in tandem to A$245.1 million in Q1, from A$228.3 million in the year-ago period.

 

The company has posted higher full-year net profit for the past four consecutive years, with earnings jumping from A$6.1 million in FY2019 to A$57.7 million in the FY2023 ended June.

 

The key to Civmec&rsquo s consistent earnings growth, according to chief executive and co-founder Patrick Tallon, is careful attention to cost management.

 

&ldquo Cost is fundamental to what you want to make in profit,&rdquo said Tallon.

 

&ldquo In Australia, in particular, the cost of ... staff and labour is probably our biggest cost. It&rsquo s at least 50 per cent or more of the cost, compared to other nations where the labour cost is less,&rdquo he added.

 

&ldquo So we spent a lot of time making sure people have the correct processes, the systems (and) the correct training as much as we can (provide) to be able to perform their job as efficiently as they can.&rdquo

 

Expanding capacity

Civmec provides a range of services across three major segments: construction work involving structural, mechanical and piping work structural concrete work and some electrical work.

 

It also manufactures equipment used in shipbuilding and provides maintenance work in refractory and industrial insulation, among other things.

 

In November 2022, Civmec broke ground on construction of its new engineering, manufacturing and maintenance facility in Port Hedland in Western Australia.

 

A year later, the new site is now fully operational, featuring a workshop and an office facility of approximately 5,000 square metres (sq m).

 

The facility will serve as a centre for maintenance support in the Pilbara region, and allow the company to provide specialised fabrication and maintenance services locally in Port Hedland. These include structural repairs, modifications and rotable item maintenance.

 

Tallon said the company had chosen to build a facility there for its prime and strategic location &ndash in close proximity to mines as well as some major iron ore exporters.

 

Sitting on 50,000 sq m of land, the new facility is expected to support the company&rsquo s verticals across segments.

 

Civmec is also eyeing another piece of land in Gladstone, Queensland, where it already has a facility that supports the maintenance works it provides.

 

The acquisition of this land is still subject to regulatory approval. When completed, however, the new addition could signify a potential new area of growth for Civmec &ndash in the liquefied natural gas (LNG) space.

 

Tallon noted that numerous LNG trains pass by, transporting the natural gas that has been cooled to a liquid state to and from Australia&rsquo s 10 liquefaction facilities.

 

&ldquo While we&rsquo re not involved in that type of work right now, they have an area for growth for us where we think we can actually get involved in that energy space &hellip (sometime) down the line,&rdquo he said.

 

Shifting operations

Meanwhile, analysts are positive about dual-listed Civmec&rsquo s plans &ndash announced in late October this year &ndash to redomicile from Singapore to Australia.

 

UOB Kay Hian analysts John Cheong and Heidi Mo believe the move would allow the company to clinch more projects in Australia, as the Australian government and corporations increasingly introduce assessment criteria for local corporations.

 

&ldquo In particular, this may bolster Civmec&rsquo s chances of contributing significantly to defence projects brought about by (Australia&rsquo s) 2023 Defence Strategic Review,&rdquo they said.

 

The group has an order book worth A$1.1 billion as at end September &ndash up nearly 18 per cent from the year before.

 

In its Q1 update, the company said it expects its order book to grow further, as tendering activities remain strong across all sectors.

 

In particular, Tallon is most optimistic about growth from the company&rsquo s maintenance arm.

 

He believes that the segment is one that would give the company the most &ldquo immediate return&rdquo , given that Civmec had just launched its new facility in Port Hedland, near the mining companies that it gets most of its maintenance business from.

 

&ldquo We&rsquo ve built the projects, we built the plant,&rdquo Tallon said. &ldquo So we&rsquo re hoping that we can actually deliver maintenance cycles for the clients in that space.&rdquo

 

HEAVY-ENGINEERING company Civmec : P9D 0% posted on Monday (Oct 30) a 7.3 per cent increase in its net profit after tax to A$15.2 million (S$13.2 million) for its first quarter ended Sep 30, from A$14.2 million a year ago.

 

Revenue rose 7.3 per cent to A$245.1 million in Q1, from A$228.3 million in the year-ago period. 

 

Earnings per share stood at 3.01 Australian cents, up 6.7 per cent year on year from 2.82 cents. 

 

In a business update, the company noted that maintenance and capital works recorded continued growth in the first quarter of the year, with several new agreements and contract extensions awarded. This included a three-year contract with an east coast-based client for maintenance works on their metallurgical coal assets, as well as a two-year extension to the contract of an existing client for maintenance, major overhaul and repair services. 

 

Tendering activity remained strong across all sectors, with the group focused on &ldquo securing projects that will allow for sustainable growth&rdquo , it added. The group&rsquo s order book also remained healthy at over A$1.1 billion, an increase of 17.9 per cent year on year, it said. 

 

&ldquo As recently announced, the company has also commenced the process of gaining regulatory approvals to allow the group to redomicile to Australia,&rdquo said Civmec chairman James Fitzgerald.

 

&ldquo It is anticipated that this will increase Civmec&rsquo s opportunity pipeline for contracts with governments and other Australian entities, where local content policies, or strong intentions to utilise local manufacturing, exist.&rdquo  

 

Analysts say sustainability of dividends more important in long run

 

FIVE companies &ndash Civmec : P9D -1.25%, Uni-Asia Group : CHJ +1.1%, Second Chance Properties : 528 -2.17%, Jason Marine Group : 5PF 0% and SUTL Enterprise : BHU 0% &ndash have grown their dividends by more than 20 per cent over the past five years. Another eight have grown their dividends by at least 10 per cent, according to Bloomberg data.

 

If you&rsquo re an investor looking to build a Singapore Exchange (SGX) version of the S& P US Dividend Growers Index, however, some analysts say these may not be the names you want in your portfolio.

 

SGX is known for its dividend payers, and Singapore-focused indices tend to have a higher average yield. This is partly because of the market&rsquo s high number of real estate investment trusts (Reits), which must pay out 90 per cent of their income to avoid a tax on that income.

 

Strip out the Reits, however, and an analysis by The Business Times found that few companies have been able to grow their dividends over the past five years. After incorporating several other factors for a margin of safety, the number falls further.

 

A screen of profitable companies with growing earnings and gearing levels of under 50 per cent found only 32 that had managed to grow their dividends in that period.

 

Dividend growth is particularly important amid rising interest rates. With the risk-free rate at its highest in roughly 16 years, even companies with very high dividend payouts have begun to look relatively unattractive.

 

Yield-hungry investors may drop such companies in favour of safer investments with similar yields, or seek higher-yielding but riskier plays.

 

Saira Malik, chief investment officer at Nuveen, cautioned against focusing too much on current dividend yields.

 

Investors who adopt such a strategy, she said, may overlook &ldquo a wide universe of well-run companies with a history of growing dividends&rdquo .

 

Dividend growers tend to outperform over time. Malik noted that global dividend payers with a more modest yield of up to 3 per cent generally have better earnings growth potential, stronger profitability metrics and higher profit margins.

 

These help to mitigate risk when volatility prevails, she said.

 

&ldquo We believe dividend-paying stocks that exhibit both the ability and willingness to consistently grow the dividend are high-quality companies, given their ability to balance dividend payments with additional capital reinvestment for future growth initiatives.&rdquo

 

Generous dividend payouts may also harm a business in the longer term, she warned. 

 

Companies that are earning just enough to pay dividends, or are paying most of their earnings as dividends, have less capital to invest back into the business.

 

This limits future growth opportunities, and could threaten both share price appreciation and dividend growth.

 

&ldquo In addition, a company with a high dividend yield or, more importantly, a high payout ratio, may be more vulnerable to competitive pressure, as cash flow may be insufficient to support operations during volatile environments,&rdquo Malik said.

 

Pedro Choi, research analyst at S& P Global Market Intelligence, said stocks with high yields are also at risk of dividend cutbacks or suspensions.

 

Look long-term

So, should investors be loading their portfolios with names from the above list of dividend growers?

 

Only if those dividends are sustainable, analysts said.

 

Indeed, several of the companies on the list are already reporting financial weakness.

 

Uni-Asia, an investment company with property and shipping assets, posted a 74 per cent fall in net profit in the first half of the year. This was due primarily to a slowdown in the shipping market, which caused a decline in revenue.

 

Meanwhile, palm oil player First Resources : EB5 -1.29% saw its earnings fall 44.1 per cent in H1, on the back of a decline in sales and lower gross margins due to the drop in crude palm oil prices.

 

Several of the other counters with significant growth in dividend payouts saw their bottom lines inch up less than 1 per cent in H1. Among them are bus and train company SBS Transit : S61 -1.55%, healthcare provider Raffles Medical Group : BSL -0.79% and coffee shop operator Kimly : 1D0 +1.56%.

 

S& P&rsquo s Choi noted that historical records are not necessarily &ldquo an indicator for future success&rdquo , particularly with the level of uncertainties that the global economy is currently facing.

 

&ldquo Investors should make assessments of a company&rsquo s future profitability and (whether its) cashflow&hellip can support future dividend continuity,&rdquo he added.

 

Choi is more optimistic of the prospects of some of the larger and steadier dividend payers.

 

S& P estimates that the Singapore stocks it tracks will grow their dividends by 6 per cent in the current year. This is ahead of expectations for stocks it tracks in other developed Asia-Pacific economies.

 

Dividend growth will taper to between 3 per cent and 4 per cent next year, even as other developed Asia-Pacific markets are set to recover from their slower growth.

 

In Singapore, Choi said the banking sector has been one of the top dividend payers. DBS : D05 +0.36%, OCBC : O39 +0.96% and UOB : U11 +0.56% are expected to pay out an aggregate of S$10.4 billion in dividends this year, up 26 per cent in nominal terms from 2022.

 

With interest rates forecast to peak, however, he expects the banking sector&rsquo s dividends to grow by a low- to mid-single digit figure in 2024.

 

One bank to watch is UOB, which is among the list of top dividend growers over a five-year period. According to Bloomberg data, it has grown its dividend by 6.2 per cent.

 

CONSTRUCTION and engineering services provider Civmec : P9D +2.52% reported on Monday (Aug 28) a 4.4 per cent rise in net profit to A$29.4 million (S$25.6 million) for the half-year ended Jun 30, 2023, up from the A$28.2 million it posted for the corresponding period the year before.

 

This was despite a 1.9 per cent fall in revenue to A$412 million for the period, from A$419.9 million in the year-ago period.

 

The group attributed the rise in net profit to increased gross margins in the period, which rose to 13.9 per cent year on year, from 11.6 per cent for the half-year before.

 

The group also recognised a 12.5 per cent year-on-year increase in other income to A$2.1 million, due to interest income, fuel tax credits, gain on disposal of plant and equipment, as well as gain on disposal of the group&rsquo s interest in Civtec Africa.

 

Civtec Africa operates in Uganda, and is also a construction and engineering services provider.

 

Earnings per share for the period stood at A$0.0583 for the period, up from A$0.0561 a year ago.

 

For the full year ended Jun 30, 2023, net profit grew 13.7 per cent year on year to A$57.7 million, while revenue grew 2.7 per cent to A$830.9 million.

 

The group has proposed a A$0.03 final dividend, which is subject to approval at its upcoming annual general meeting. This is up from the A$0.02 final dividend that was declared for the same period a year earlier.

 

Civmec said that the group recorded healthy cash flow from operations of A$122.8 million for the full year, compared to its earnings before interest, tax, depreciation and amortisation (Ebitda) of A$109.1 million, which enabled it to finish the year in a net cash position of A$13.9 million.

 

It has a number of projects that are underway as well. These include its covalent lithium refinery, where site work is nearing the peak of activity with the completion of manufacturing works, as well as the commencement of work on the Western Ranges project for mining group Rio Tinto.

 

The group added that opportunities &ldquo remain plentiful&rdquo for it to replenish its order book, which amounted to A$1.1 billion as at Jun 30, 2023, up 10.6 per cent year on year.

 

UOB Kay Hian&rsquo s John Cheong has maintained his &ldquo buy&rdquo call on Civmec, along with a raised target price of $1.23 from $1.10, following the Australia-based company&rsquo s 9MFY2023 earnings.

 

For the three months to March, Civmec reported earnings of A$15 million, up 20% y-o-y, as it delivered higher margin projects.

 

Cheong notes that Civmec has built up an orderbook of A$1.2 billion, and is making improvements in efficiency.

 

&ldquo Civmec is increasingly regarded by its clients as the go-to contractor for reliable delivery and time-critical services,&rdquo writes Cheong in his May 24 note.

 

In a bid to generate a bigger proportion of recurring income, Civmec has been winning more maintenance contracts.

 

Relative to the clutch of oil and gas companies under UOB Kay Hian&rsquo s coverage, Civmec is a relative laggard. Its share price is up 22% year to date, versus these other stocks that have gained between 25% to 174%.

 

These peers are Kim Heng, Dyna-Mac Holdings, Atlantic Navigation and Marco Polo Marine.

 

This even as Civmec is deemed to have &ldquo superior financial metrics&rdquo , given its better yield estimated at 6% as well as a more attractive PE multiple, states Cheong.

 

Cheong&rsquo s revised target price of $1.23 is pegged to 11x forward FY2024 earnings. At current levels, it is trading at 7x. Its peers are trading at 12x.