Civmec Limited

Civmec Limited ("Civmec" or "Company") is offering 101m shares (51m new shares and 50m vendor shares) at $0.40 each. 99m shares will be via placement and 2m shares will be for the public. The offer will close on 11 April at 12 pm and starts trading on 13 April.


Civmec is an Australian-based integrated multi-disciplinary construction and heavy engineering services provider to the oil and gas, mining and other industries. The Company is raising IPO proceeds to build a bigger premises and for working capital. It is interesting to note that an Australian company has chose to list here instead of ASX.


For the Financial Year 2011, Civmec generated revenue of S$61m and a net profit of S$7.523m. There is a translation gain of S$1.334m and that resulted in a higher profit of $8.856m. Excluding the translation gain and based on the enlarged share capital of 501m shares, the EPS is 1.5 Singapore cents and that translate into a historical PE of 26.6x. Assuming the service agreements are in place, the listing PE ratio will increase to around 28x. (wow!).


Unaudited Q1 2012 showed a significant increase in revenue of $43.699m (increase of 40%) and net profit of $5.189m (increase of 431%). As you can see, the revenue and earnings can be very lumpy and without being privy to additional information, it will be tough to forecast what the 2012 earnings will look like. I will attempt to "smoothen" the earnings from another angle. The net margins for FP2010 is about 14% and FY2011 is 12.3%. It is about 11.9% for Q1 2012. According to the prospectus page 136, the FY2012 is expected to derive $102m worth of orders. If i used a net margin of 12%, that means the net profit for FY12 will be around S$12.24m. If i assume FY2011 profit will double, the net profit will be $15m. 


With the net profit range of $12-15m (i am just guessing) for FY2012, the EPS will range from 2.4 to 3 Singapore cents. That translate into a forward PE of 13-16x which in my view, will be more than fairly valued. At the IPO price of 40 cents, it is issued at a large premium to its NAV of 12.7 cents. The market cap is approximately S$200.4 million.

There are 2 batches of pre-IPO investors. The first batch (Ang Kong Hua and Foo Siang Guan) got in at 11.8 cents (3.3x return at IPO price) and the second batch got in at 23.4 cents (1.7x return at IPO price). Most of the pre-IPO investors are the "who's who"on the Singapore corporate scene. Just need to google it and you can find out who they are. As usual, what i do not like to see are pre-IPO investors cashing out at the IPO price. 


Conclusion:  While the construction and engineering firm is in a more resilient sector of serving the Oil and Gas companies, my gut feel is that it is already more than fairly priced at the IPO price. However, with the current good sentiments and low public tranche, the share price could possibly shoot up in the near term but it is a hit and run counter for me. I will probably give it a miss given the high valuation and save my $1 application fee given the low probability of getting it.