DBS Vickers 2015-08-14: CSE Global Ltd - 2Q15; Decent earnings and order book. Maintain BUY.


Decent earnings and order book 

  • Excluding one-off gains of S$1.8m, 2Q15 net profit of S$ 8.1m (flat y-o-y, +6% q-o-q) was in line; DPS of 1.25 Scts in line 
  • Order book of S$238m (+22% y-o-y) provides decent 8-month business visibility 
  • One small acquisition in 2Q15 and evaluating more acquisition opportunities in the near term; net cash position should be an advantage. 
  • Maintain BUY with revised TP of S$ 0.59 based on 20% discount (10% earlier) to average historical PE of 9.6x to reflect challenging industry outlook 


Revenue supported by strong USD. 

  • Revenue of S$ 112.1m (+4% y-o-y, +5% q-o-q) was in line. This was supported by contributions from Americas and APAC regions. Favourable currency movements also helped top line. Revenue grew 1% y-o-y in constant currency terms. Gross margins at 26.6% were lower than our 28% estimate due to lower gross margins from a large greenfield project (S$50m-S$60m) in Australia. For this particular project, ~70% of the revenue has been recognized in 1H15 and only 30% to be recognized in 2H15 implying improved margins in 2H15. CSE also expects decent cash collection from this project in 3Q15 and 4Q15. 

M&A activities. 

  • There was S$1.8m gain from the disposal of its subsidiary Power Diesel in 2Q15 for net proceeds of S$11m. This marked CSE’s departure from offshore support vessel market which seems to be facing multi-year challenges. In addition, CSE acquired a telecom equipment player Crosscom for S$5m (mid-single digit PE) to raise its Australian business. 


Looking for more acquisitions in a challenging environment. 

  • Order book remains strong with order wins of S$97m and outstanding orders worth S$238m. Low oil prices may subdue greenfield investments in oil & gas and mining segments. However, we believe its strong order book and healthy contributions from brownfield and small greenfield projects should help CSE to meet our FY15 projections. CSE is also looking to acquire smaller companies which may be available at cheap valuations in this challenging environment. 


  • We increase the discount to 20% (from 10% earlier) to its historical average PE of 9.6x, to reflect the challenging outlook in the O&G sector. Our TP of S$0.59 is based on excash FY15F PE of 7.7x plus net cash of S$23m. At current market price, the stock offers upside of 15% in addition to a 5.5% yield. 

Key Risks: 

Forex may impact the bottomline. 

  • Further weakness in AUD may adversely impact its profits as Australia comprises ~25% of group business. This may be offset by US business which comprises about 50% of its group business. 

Higher than expected slowdown in investment in oil and gas projects. 

  • The company may not be able to meet our projections if slowdown in investment in oil & gas segments is more severe than expected

Sachin MITTAL | http://www.dbsvickers.com/ DBS Securities 2015-08-14
BUY Maintain BUY 0.59 Down 0.65