CSE Global - DBS Research 2016-02-25: Impressive results, weak order wins

CSE Global - DBS Research 2016-02-25: Impressive results, weak order wins CSE GLOBAL LTD 544.SI 

CSE Global - Impressive results, weak order wins 

  • 4Q15 net profit of S$8.1m (-22% y-o-y,-5% q-o-q) was c.5% higher than expectations 
  • Project completions helped boost bottom line 
  • Order book (-24% y-o-y) under pressure due to the lack of large greenfield project wins 
  • Maintain HOLD with a revised TP of S$0.46

Large greenfield projects at risk. 

  • CSE secures almost 60% of its business from brownfield projects which are recurring in nature and command superior margins than other projects. 
  • Another 20% comes from small greenfield projects where CSE is positioned quite well. 
  • The remaining 20% of its business comes from large greenfield projects which involve the construction of new production facilities by oil companies. 
  • While small greenfield projects are still ongoing, there is a clear slowdown in large Greenfield projects due to the low oil price. 

4Q15 net profit was 5% above but new order win was weak. 

  • Change in revenue mix and order completions boosted margins (GP margin of 31.1% in 4Q15 vs 28.9% in 3Q15). Cash flows also improved due to better collections from project delivery. 
  • However, new order wins of S$70.8m (-58% y-o-y) was below our S$95m estimate, causing the order book to dip to S$192.7m (-24% y-o-y). 

Acquisitions to support the bottom line in FY16F. 

  • CSE has acquired certain assets of CC American Group, an oil & gas equipment manufacturer and repairer, in January 2016 for US$6.05m at single-digit PE valuations. This is in addition to the acquisition of Crosscom, a telecom equipment player, in 2Q15. 
  • Management believes the acquisitions will be bottomline accretive and help the company grow in the long term. 

Valuation: 

  • We revise down our TP to S$0.46, based on a lower ex-cash FY16F PE of 6.2x plus net cash of S$54m. 
  • We increased the discount used on CSE’s historical average PE of 9.6x to 35%, to reflect the increasingly volatile and challenging outlook in the oil & gas sector. 

Key Risks to Our View: 

  • Forex may impact the bottomline further. Further weakness in AUD may adversely impact its profits as Australia makes up ~25% of group business. This may be offset by US business which accounts for about 50% of its group business.



Sachin Mittal DBS Vickers | http://www.dbsvickers.com/ 2016-02-25
DBS Vickers Analyst Report HOLD Maintain HOLD 0.46 Down 0.49


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