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

CSE GLOBAL LTD 544.SI

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.

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.

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