CSE Global - CIMB Research 2016-05-10: Moving towards infrastructure play

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CSE Global - Moving towards infrastructure play

At 20% of our FY16F, 1Q16’s net profit of S$5.5m (US$4m) is broadly in line with our expectations and consensus. 2H16 will be stronger with more projects done.
CSE is probably the only Singapore small cap with oil & gas exposure that is in net cash (S$57m), positive FCF and operating cashflows, with c.3.6% dividend yield.
No change to our EPS and target price, still based on 9x CY17 P/E.

Revenue fell 20% yoy and 15% qoq to S$84m (US$61m), in line with our expectations.
America’s revenue of S$47m (-19% yoy, -21% qoq) was lower due to the completion of large greenfield projects.
Asia Pacific and Middle East revenues were broadly steady qoq at S$25m and S$12m, respectively.
Oil & gas revenue made up 80% of CSE’s revenue at S$68m (-22% yoy, -15% qoq) and have been affected by the weak industry sentiment.
Infrastructure revenue, however, grew at 48% yoy and 13% qoq to S$15m.

1Q16’s EBIT margin inched up slightly qoq to 7.6%, from 7.2% in 4Q15, mainly from Asia Pacific and thanks to positive variance orders for Australian projects, as well as execution of high-margin projects from Singapore.

Net cash stood at S$57m (US$42m) (4Q15: S$54m), with positive operating cashflows of S$19m.
CSE is one of the few Singapore small caps with oil & gas exposure that has a strong balance sheet and decent dividend yield of c.3.6%.

CSE bagged S$74.9m of orders in 1Q16 and is keeping its guidance of S$70m-80m brownfield orders per quarter, while aiming for an additional S$80m-100m greenfield projects for FY16. This could bring FY16’s order wins to match FY15’s S$350m.
Focus will shift towards infrastructure projects, including ERP2, controls for train systems, power generation, utilities and waste treatment.
EBIT margin for infrastructure is higher at 15% compared to 6% for oil & gas.
Order book stands at S$179.6m (US$131m).

We make no changes to our EPS and target price, still based on 9x CY17 P/E, or a 10% discount to its 5-year mean.
The stock is trading at an undemanding 0.85x P/BV against its average ROE of 10%.
Potential catalysts could come from stronger orders or sizeable M&As.
CSE is our top pick among the small caps O&G companies for its predictability, net cash, steady margins and order wins.

LIM Siew Khee CIMB Securities | http://research.itradecimb.com/ 2016-05-10

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