CIMB Securities 2015-08-12: CSE Global Ltd - 2Q15; Boring is the new exciting. Maintain ADD.


Boring is the new exciting 

  • As with the past few quarters, CSE’s 2Q15 core net profit of S$8.1m (flat yoy) broadly met our and consensus expectations, bringing 1H15 core net profit to 44% of our full-year forecast. 
  • After the problematic years of FY12-13, CSE’s results have reverted to become fairly predictable (or even boring, some may say), as demonstrated by the FY14 and YTD performances. 
  • Given the market’s funk, predictability is now a desired quality. 
  • Also, CSE’s heightened order book of S$239m (+22% yoy) should position the group nicely for the remainder of the year. 
  • We maintain Add, with a slightly lower 9x CY16 P/E target price S$0.60 (its 5-year mean) as we tweak our FY15-17 EPS by 5-7%. 
  • Potential catalysts could come from stronger earnings or sizeable M&As. 

2Q15 highlights: steady as she goes 

  • We find CSE’s steady 2Q15 earnings performance encouraging, considering the challenging macro conditions. 
  • 2Q15 gross margin decreased to 26.6% (2Q14: 29.9%) due to recognition of a large greenfield project in Australia, which earns lower gross margins. 
  • However, the lower profitability was offset by lower taxes. 
  • Geographically, Europe/Middle East/Africa (EMEA) posted strong rebound, registering c.100% increase in 2Q15 EBIT, as growth in the topline translated directly to the bottomline. 
  • US shale woes notwithstanding, the Americas achieved 10% EBIT growth, in line with 10% revenue growth. 
  • Including the S$1.8m disposal gain of 66%-owned Power Diesel (S$7.5m cash proceeds), CSE recorded headline net profit of S$9.9m (+23% yoy). 
  • The group remains in a net cash position of S$7m, even though it incurred S$14.5m operating cash outflow in 1H due to additional working requirements for the large project in Australia and earlier projects in the US. 
  • However, we expect the outflow to reverse towards end-15 as these projects reach their billing milestones. 
  • Lastly, an interim DPS of 1.25 Scts (flat yoy) was declared. 

FY16 earnings to hold up 

  • CSE bagged S$97.4m orders in 2Q15, which brought the order book to S$237.8m at end-1H15 (-6% qoq, +22% yoy). 
  • The heightened order book should position the group nicely for the remainder of the year. 
  • Meanwhile, thanks to its diversified business model and focus on brownfield maintenance jobs, we expect FY16 earnings to hold up. 
  • While acknowledging that activities on the resource-side have come down, management is looking at bolt-on acquisitions (such as the recent acquisition of Crosscom in Jun) and strengthening its overseas presences to plug some of the shortfall. 
  • YTD, it has opened three new offices in India, Korea and the US. At 1.2x CY15 P/BV, investors are made good with 14% ROEs and 5-6% dividend yields. 
  • Add maintained.

YEO Zhi Bin | http://research.itradecimb.com/ CIMB Securities 2015-08-07
ADD Maintain ADD 0.60 Down 0.65