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

CSE Global - CIMB Research 2016-05-10: Moving towards infrastructure play CSE GLOBAL LTD 544.SI 

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. 
  • Maintain Add. Catalysts could come from earnings accretive M&A. 

Largely oil and gas revenue with strong pick up in infrastructure 

  • 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. 

Margins inched up 

  • 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, positive operating cashflows 

  • 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%. 

Still winning orders, targeting S$350m (US$255m) in FY16 

  • 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). 

Maintain Add and target price of S$0.52 

  • 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
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.52 Same 0.52