CEI Limited - Rewarding shareholders
- FY16 core net profit was 100% of our forecast.
- Revenue declined 1.6% yoy due to the weak Oil & Gas industry and the weaker US$ in FY16.
- It declared a 5.2 Scts DPS in 2H16, in line with 2H15, near a 100% dividend payout ratio for FY16.
- Rolling over to FY18F, our target price rises to S$1.11, still based on its 9-year average P/E of 9.2x.
Slight decline in core net profit
- FY16 revenue fell by 1.6% yoy due to the weak Oil & Gas industry in FY16. We understand that CEI has a customer in the Oil & Gas industry that accounted for ~10% of sales.
- The average US$/SG$ exchange rate was also lower at 1.3807 in FY16 versus 1.4185 in FY15. This resulted in a lower gross profit margin of 23.3% in FY16 versus 25.3% in FY15.
- The tax rate was lower due to the write-back of over provision of tax from the previous year.
- We trim FY17-19 EPS due to lower revenue expectations.
Dividends did not disappoint
- For 2H16, CEI declared DPS of 5.2 Scts. Together with 1H16 DPS of 4.8 Scts, FY16 DPS amounted to 10 Scts, or nearly 100% of profit. CEI generated S$12.8m in cash from operations and capex was a minimal S$0.6m in FY16.
- Borrowings declined to S$2.5m in FY16 from S$7.5m in FY15. Net cash as at end-Dec 16 was S$9.2m.
Expects to remain profitable
- In terms of outlook, CEI will remain vigilant given the uncertainties created by recent political developments in the international arena. The group expects to remain profitable in FY17.
- As at end Dec-16, CEI has an order book of S$46.8m (S$49.0m in Dec 15) that is expected to be fulfilled within FY17.
Maintain Add, higher target price due to rollover
- We maintain our Add call on CEI with a higher target price of S$1.11 as we roll over to FY18F.
- We still value CEI using its historical 9-year average P/E of 9.2x. FY19F forecasts are also introduced.
- We assume an 80% payout ratio leading to prospective FY17-18F dividend yields of 9.5-10.3%. If CEI sticks to its 10 Scts DPS, dividend yield would be higher at 10.6% for FY17-18F.
- Potential catalysts are new order wins and stronger US$.
- Key risks are a slowdown in customer orders and a weaker US$.