Civmec Limited

Kim Eng on 20 Sept 2012

Civmec’s management was in town this week and we hosted them for a lunchtime presentation on 18 Sep 2012. Key takeaways from the presentation are as follows:

Not affected by slowdown in mining boom. While there are concerns on the slowdown in mining projects in Australia, Civmec has not been directly affected by any scaled-back projects. The value of work underway in construction from both mining and the oil and gas sectors is estimated at USD211b and is substantially higher when compared to previous years. Projects and jobs from the increased investments would need to be filled and Civmec expects to benefit from it.

Public sector projects could make up for slowdown. Management also mentioned the possibility of the Australian government increasing their spending on public sector infrastructure and utilities projects to counter any potential slowdown in private sector investments.

Confident of orderbook replenishment. Civmec’s orderbook stood at SGD264m as at FY6/12 and most of t would be recognised in FY6/13. Mnagement did not reveal the amount of contracts it is currently rendering for, but suggested that success rate could be in the range of 25-30%. We figured that Civmec would need to bid for at least SGD1.3b worth of contracts a year in order to replenish its orderbook and maintain the same revenue level it achieved in FY6/12. To achieve positive topline growth, it would need to bid above that level. There should be ample projects available in the market for bidding judging from the amount of expected investments.

Customers want Civmec to be profitable. As Civmec starts to take on bigger-size projects, its margins are expected to decline and this has been apparent from its reported results. An interesting point brought up by the management is that customers have incentives to ensure that dependable players like Civmec are profitable, so that the latter can continue to service them in other projects.

SMP the next growth area. Civmec’s next growth area is in Structural, Mechanical and Piping (SMP) installation, which it hopes to expand once its office building is completed by March 2013. It can then engage a stronger team of engineers to take on such projects.