CSE Global - CIMB Research 2016-02-25: Constant in a choppy market

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CSE Global - Constant in a choppy market 

• FY15 core net profit of S$30.7m was in line at 100% of our forecast. 4Q15 NP of S$8m slightly ahead of our expected S$7.4m on lower tax. 
• Final and special DPS totaling 1.5 Scts. Total DPS at 2.75 Scts, implying 6.5% yield. 
• Brownfield projects to provide normalised S$70m-80m/qtr and 50% of its S$192m order book will be recognised in FY16. 
• We cut FY16-17 EPS for lower revenue and higher admin costs and cut target price (from S$0.55 to S$0.52). 
• With its net cash position, CSE in a better position than other Singapore O&Gs. 

■ Revenue affected by weaker Australia 

• 4Q15 revenue fell 15% yoy and 4% qoq to S$99m, broadly in line with our estimate. Revenue from Asia Pacific slumped 19% yoy to S$25m (3% qoq), reflecting the weakened Aussie dollar and challenging mining industry in Australia. 
• The stronger US dollar however provided a slight 4% qoq lift in America’s revenue to S$60m in 4Q15 despite a seasonally slower quarter. 
• Middle East revenue remained steady at S$14m. 

■ Steady margins 

• FY15 EBITDA margin of 10.5% was mostly in line with our expected 10.7%. Group’s gross margin was steady at 28.7% in FY15 (FY14: 28.6%). 
• Management guided that competitive bidding may lead to 1-2% lower gross margins in FY16. 

■ A relatively steady 2015 

• Despite challenging macros, its revenue was steady at c.S$412m with unchanged gross margins. Other than a 3% yoy rise in admin expenses (higher payroll taxes and healthcare expenses in the US) and additional S$1.5m generic provision for doubtful debts for oil & gas projects, we consider its PBT of S$40.5m relatively steady. 

■ Strong cashflows, targeting more M&As in the US and Australia 

• Net cash improved from S$22.4m in FY14 to S$54m in FY15 thanks to higher collections and billings in 4Q15. Part of the cash will be used to fund M&As in the US and Australia. 
• Its latest acquisition in the US (CC American group) is expected to contribute c.US$1.2m of net profit p.a. Crosscom Australia has also started to contribute. 

■ Brownfield projects to contribute c.S$280m revenue p.a. 

• CSE bagged c.S$70.8m of new orders in 4Q15, bringing the FY15 order win to S$351m. The order book stood at S$192m at end-FY14 of which 50% will be recognised in FY16. Management expects brownfield projects of S$70m-80m/quarter in FY16. 

■ Maintain Add but lower target price 

• We cut our FY16-17 EPS by 3-6% on lower growth in Australia and higher admin expenses. 
• Among oil & gas names, CSE stands out with its strong balance sheet, steady margins and decent yield. It is trading at 0.9x P/BV vs. 11% ROE. 
• Catalysts could come from a stronger US dollar and order intake. 
• Our target price is still based on 9x CY17 P/E, 10% discount to its 5-year mean.

LIM Siew Khee CIMB Securities | http://research.itradecimb.com/ 2016-02-25

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.52 Down 0.55